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Wiley Binder Version WILEY

Managing and Using Information Systems

A STRATEGIC APPROACH

Sixth Edition

Keri E. Pearlson KP Partners

Carol S. Saunders W.A. Franke College of Business Northern Arizona University Dr. Theo and Friedl Schoeller Research Center for Business and Society

Dennis F. Galletta Katz Graduate School of Business University of Pittsburgh. Pittsburgh. PA

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Library of Congress Cataloging-in-Publication Data Names: Pearlson, Keri E. I Saunders, Carol S. I Galletta, Dennis F. Title: Managing and using information systems: a strategic approach / Keri

E. Pearlson, Carol S. Saunders, Dennis F. Galletta. Description: 6th edition. I Hoboken, NJ : John Wiley & Sons, Inc., [2015] I

Includes index.

Identifiers: LCCN 2015041210 (print) I LCCN 2015041579 (ebook) I ISBN 9781119244288 (loose-leaf: alk. paper) I ISBN 9781119255208 (pdf) I ISBN 9781119255246 (epub)

Subjects: LCSH: Knowledge management. I Information technology-Management. I Management information systems. I Electronic commerce.

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10 9 8 7 6 5 4 3 2

To Yale & Hana

To Rusty, Russell, Janel & Kristin

To Carole, Christy, Lauren, Matt, Gracie, and Jacob

..

Preface

Information technology and business are becoming inextricably interwoven. I don't think anybody can talk meaningfully about one without the talking about the other.

Bill Gates Microsoft 1

I'm not hiring MBA students for the technology you learn while in school, but for your ability to learn about, use and subsequently manage new technologies when you get out.

Give me a fish and I eat for a day; teach me to fish and I eat for a lifetime.

IT Executive Federal Express2

Proverb

Managers do not have the luxury of abdicating participation in decisions regarding information systems (IS). Managers who choose to do so risk limiting their future business options. IS are at the heart of virtually every business interaction, process, and decision, especially when the vast penetration of the Web over the last 20 years is considered. Mobile and social technologies have brought IS to an entirely new level within firms and between ,.J individuals in their personal lives. Managers who let someone else make decisions about their IS are letting someone else make decisions about the very foundation of their business. This is a textbook about managing and using information written for current and future managers as a way to introduce the broader implications of the impact of IS.

The goal of this book is to assist managers in becoming knowledgeable participants in IS decisions. Becoming a knowledgeable participant means learning the basics and feeling comfortable enough to ask questions. It does not mean having all the answers or having a deep understanding of all the technologies out in the world today. No text will provide managers everything they need to know to make important IS decisions. Some texts instruct on the basic technical background of IS. Others discuss applications and their life cycles. Some take a comprehensive view of the management information systems (MIS) field and offer readers snapshots of current systems along with chapters describing how those technologies are designed, used, and integrated into business life.

This book takes a different approach. It is intended to provide the reader a foundation of basic concepts relevant to using and managing information. This text is not intended to provide a comprehensive treatment on any one aspect of MIS, for certainly each aspect is itself a topic of many books. This text is not intended to provide readers enough technological knowledge to make them MIS experts. It is not intended to be a source of discussion of any particular technology. This text is written to help managers begin to form a point of view of how IS will help or hinder their organizations and create opportunities for them.

The idea for this text grew out of discussions with colleagues in the MIS area. Many faculties use a series of case studies, trade and popular press readings, and Web sites to teach their MIS courses. Others simply rely on one of the classic texts, which include dozens of pages of diagrams, frameworks, and technologies. The initial idea for this text emerged from a core MIS course taught at the business school at the University of Texas at Austin. That course was considered an "appetizer" course-a brief introduction into the world of MIS for MBA students. The course had two main topics: using information and managing information. At the time, there was no text like this

1 Bill Gates, Business@ the Speed of Thought. New York: Warner Books, Inc. 1999. ' Source: Private conversation with one of the authors. ""1111

Preface • one; hence, students had to purchase thick reading packets made up of articles and case studies to provide them the basic concepts. The course was structured to provide general MBA students enough knowledge of the MIS field so that they could recognize opportunities to use the rapidly changing technologies available to them. The course was an appetizer to the menu of specialty courses, each of which went much more deeply into the various topics. But completion of the appetizer course meant that students were able to feel comfortable listening to, contributing to, and ultimately participating in IS decisions.

Today, many students are digital natives-people who have grown up using information technologies (IT) all of their lives. That means that students come to their courses with significantly more knowledge about things such as tablets, apps, personal computers, smartphones, texting, the Web, social networking, file downloading, online purchasing, and social media than their counterparts in school just a few years ago. This is a significant trend that is projected to continue; students will be increasingly knowledgeable the personal use of technologies. That knowledge has begun to change the corporate environment. Today's digital natives expect to find in corporations IS that provide at least the functionality they have at home. At the same time, these users expect to be able to work in ways that take advantage of the technologies they have grown to depend on for social interaction, collaboration, and innovation. We believe that the basic foundation is still needed for managing and using IS, but we understand that the assumptions and knowledge base of today's students is significantly different.

Also different today is the vast amount of information amassed by firms, sometimes called the "big data" prob- lem. Organizations have figured out that there is an enormous amount of data around their processes, their interac- tions with customers, their products, and their suppliers. These organizations also recognize that with the increase in communities and social interactions on the Web, there is additional pressure to collect and analyze vast amounts of unstructured information contained in these conversations to identify trends, needs, and projections. We believe that today's managers face an increasing amount of pressure to understand what is being said by those inside and outside their corporations and to join those conversations reasonably and responsibly. That is significantly different from just a few years ago.

This book includes an introduction, 13 chapters of text and mini cases, and a set of case studies, supplemental readings, and teaching support on a community hub at http://pearlsonandsaunders.com. The Hub provides faculty members who adopt the text additional resources organized by chapter, including recent news items with teaching suggestions, videos with usage suggestions, blog posts and discussions from the community, class activities, addi- tional cases, cartoons, and more. Supplemental materials, including longer cases from all over the globe, can be found on the Web. Please visit http://www.wiley.com/college/pearlson or the Hub for more information.

The introduction to this text defends the argument presented in this preface that managers must be knowledge- able participants in making IS decisions. The first few chapters build a basic framework of relationships among business strategy, IS strategy, and organizational strategy and explore the links among them. The strategy chapters are followed by ones on work design and business processes that discuss the use of IS. General managers also need some foundation on how IT is managed if they are to successfully discuss their next business needs with IT pro- fessionals who can help them. Therefore, the remaining chapters describe the basics of information architecture and infrastructure, IT security, the business of IT, the governance of the IS organization, IS sourcing, project management, business analytics, and relevant ethical issues.

Given the acceleration of security breaches, readers will find a new chapter on IS security in this sixth edition of the text. Also, the material on analytics and "big data" has been extensively updated to reflect the growing impor- tance of the topic. Further, the chapter on work design has been reorganized and extensively revised. Each of the other chapters has been revised with newer concepts added, discussions of more current topics fleshed out, and old, outdated topics removed or at least their discussion shortened.

Similar to the fifth edition, every chapter begins with a navigation "box" to help the reader understand the flow and key topics of the chapter. Further, most chapters continue to have a Social Business Lens or a Geographic Lens feature. The Social Business Lens feature reflects on an issue related to the chapter's main topic but is enabled by or fundamental to using social technologies in the enterprise. The Geographic Lens feature offers a single idea about a global issue related to the chapter's main topic.

No text in the field of MIS is completely current. The process of writing the text coupled with the publication process makes a book somewhat out-of-date prior to delivery to its audience. With that in mind, this text is written

• Preface to summarize the "timeless" elements of using and managing information. Although this text is complete in and of itself, learning is enhanced by combining the chapters with the most current readings and cases. Faculty are encouraged to read the news items on the faculty Hub before each class in case one might be relevant to the topic of the day. Students are encouraged to search the Web for examples related to topics and current events and bring them into the discussions of the issues at hand. The format of each chapter begins with a navigational guide, a short case study, and the basic language for a set of important management issues. These are followed by a set of managerial concerns related to the topic. The chapter concludes with a summary, key terms, a set of discussion questions, and case studies.

Who should read this book? General managers interested in participating in IS decisions will find this a good reference resource for the language and concepts of IS. Managers in the IS field will find the book a good resource for beginning to understand the general manager's view of how IS affect business decisions. And IS students will be able to use the book's readings and concepts as the beginning in their journey to become informed and success- ful businesspeople.

The information revolution is here. Where do you fit in?

Keri E. Pearlson, Carol S. Saunders, and Dennis F. Galletta

Acknowledgments

Books of this nature are written only with the support of many individuals. We would like to personally thank several individuals who helped with this text. Although we've made every attempt to include everyone who helped make this book a reality, there is always the possibility of unintentionally leaving some out. We apologize in advance if that is the case here.

Thank you goes to Dr. William Turner of LeftFour, in Austin, Texas, for help with the infrastructure and architecture concepts and to Alan Shimel, Editor-in-Chief at DevOps.com for initial ideas for the new security chapter.

We also want to acknowledge and thank pbwiki.com. Without its incredible and free wiki, we would have been relegated to e-mailing drafts of chapters back and forth, or saving countless files in an external drop box without any opportunity to include explanations or status messages. For this edition, as with earlier editions, we wanted to use Web 2.0 tools as we wrote about them. We found that having used the wiki for our previous editions, we were able to get up and running much faster than if we had to start over without the platform.

We have been blessed with the help of our colleagues in this and in previous editions of the book. They helped us by writing cases and reviewing the text. Our thanks continue to go out to Jonathan Trower, Espen Andersen, Janis Gogan, Ashok Rho, Yvonne Lederer Antonucci, E. Jose Proenca, Bruce Rollier, Dave Oliver, Celia Romm, Ed Watson, D. Guiter, S. Vaught, Kala Saravanamuthu, Ron Murch, John Greenwod, Tom Rohleder, Sam Lubbe, Thomas Kern, Mark Dekker, Anne Rutkowski, Kathy Hurtt, Kay Nelson, Janice Sipior, Craig Tidwell, and John Butler. Although we cannot thank them by name, we also greatly appreciate the comments of the anonymous reviewers who have made a mark on this edition.

The book would not have been started were it not for the initial suggestion of a wonderful editor in 1999 at John Wiley & Sons, Beth Lang Golub. Her persistence and patience helped shepherd this book through many previous editions. We also appreciate the help of our current editor, Lise Johnson. Special thanks go to Jane Miller, Gladys Soto, Loganathan Kandan, and the conscientious JaNoel Lowe who very patiently helped us through the revision process. We also appreciate the help of all the staff at Wiley who have made this edition a reality.

We would be remiss if we did not also thank Lars Linden for the work he has done on the Pearlson and Saunders Faculty Hub for this book. Our vision included a Web-based community for discussing teaching ideas and post- ing current articles that supplement this text. Lars made that vision into a reality starting with the last edition and continuing through the present. Thank you, Lars!

From Keri: Thank you to my husband, Yale, and my daughter, Hana, a business and computer science student at Tulane University. Writing a book like this happens in the white space of our lives-the time in between everything else going on. This edition came due at a particularly frenetic time, but they listened to ideas, made suggestions, and celebrated the book's completion with us. I know how lucky I am to have this family. I love you guys!

From Carol: I would like to thank the Dr. Theo and Friedl Schoeller Research Center of Business and Society for their generous support of my research. Rusty, thank you for being my compass and my release valve. I couldn't do it without you. Paraphrasing the words of an Alan Jackson song ("Work in Progress"): I may not be what you want me to be, but I'm trying really hard. Just be patient because I'm a work in progress. I love you, Kristin, Russell, and Janel very much!

From Dennis: Thanks to my terrific family: my wife Carole, my daughters Christy and Lauren, and my grand- daughter Gracie. Also thanks to Matt and Jacob, two lovable guys who take wonderful care of my daughters. Finally, thanks to our parents and sisters' families. We are also blessed with a large number of great, caring neighbors whom we see quite often. I love you all, and you make it all worthwhile!

IJII

m

About the Authors

Dr. Keri E. Pearlson is President of KP Partners, an advisory services firm working with business leaders on issues related to the strategic use of information systems (IS) and organizational design. She is an entrepreneur, teacher, researcher, consultant, and thought leader. Dr. Pearlson has held various positions in academia and industry. She has been a member of the faculty at the Graduate School of Business at the University of Texas at Austin where she taught management IS courses to MBAs and executives and at Babson College where she helped design the popular IS course for the Fast Track MBA program. Dr. Pearlson has held positions at the Harvard Business School, CSC, nGenera (formerly the Concours Group), AT&T, and Hughes Aircraft Company. While writing this edition, she was the Research Director for the Analytics Leadership Consortium at the International Institute of Analytics and was named the Leader of the Year by the national Society of Information Management (SIM) 2014.

Dr. Pearlson is coauthor of Zero Time: Providing Instant Customer Value-Every Time, All the Time (John Wiley, 2000). Her work has been published in numerous places including Sloan Management Review, Academy of Management Executive, and Information Resources Management Journal. Many of her case studies have been published by Harvard Business Publishing and are used all over the world. She currently writes a blog on issues at the intersection of IT and business strategy. It's available at www.kppartners.com.

Dr. Pearlson holds a Doctorate in Business Administration (DBA) in Management Information Systems from the Harvard Business School and both a Master's Degree in Industrial Engineering Management and a Bachelor's Degree in Applied Mathematics from Stanford University.

Dr. Carol S. Saunders is Research Professor at the W. A. Franke College of Business, Northern Arizona University in Flagstaff, Arizona, and is a Schoeller Senior Fellow at the Friedrich-Alexander University of Erlangen-Nuremberg, Germany. She served as General Conference Chair of the International Conference on Information Systems (ICIS) in 1999 and as Program Co-Chair of the Americas Conference of Information Systems (AMCIS) in 2015. Dr. Saunders was the Chair of the ICIS Executive Committee in 2000. For three years, she served as Editor-in-Chief of MIS Quarterly. She is currently on the editorial boards of Journal of Strategic Information Systems and Organization Science and serves on the advisory board of Business & Information Systems Engineering. Dr. Saunders has been recognized for her lifetime achievements by the Association of Information Systems (AIS) with a LEO award and by the Organizational Communication and Information Systems Division of the Academy of Management. She is a Fellow of the AIS.

Dr. Saunders' current research interests include the impact of IS on power and communication, overload, virtual teams, time, sourcing, and interorganizational linkages. Her research is published in a number of journals including MIS Quarterly, Information Systems Research, Journal of MIS, Communications of the ACM, Journal of Strategic Information Systems, Journal of the AIS, Academy of Management Journal, Academy of Management Review, Communications Research, and Organization Science.

Dr. Dennis F. Galletta is Professor of Business Administration at the Katz Graduate School of Business, University of Pittsburgh in Pennsylvania. He is also the Director of the Katz School's doctoral program and has taught IS Management graduate courses in Harvard's summer program each year since 2009. He obtained his doctorate from the University of Minnesota in 1985 and is a Certified Public Accountant. Dr. Galletta served as President of the Association of Information Systems (AIS) in 2007. Like Dr. Saunders, he is both a Fellow of the AIS and has won a LEO lifetime achievement award. He was a member of the AIS Council for five years. He also served in leadership roles for the International Conference on Information Systems (ICIS): Program Co-Chair in 2005 (Las Vegas) and Conference Co-Chair in 2011 (Shanghai); as Program Co-Chair for the

About the Authors -Americas Conference on Information Systems (AMCIS) in 2003 (Tampa, Florida) and Inaugural Conference Chair in 1995 (Pittsburgh). The Pittsburgh conference had several "firsts" for an IS conference, including the first on-line submissions, reviews, conference registration and payment, placement service, and storage of all papers in advance on a website. Dr. Galletta served as ICIS Treasurer from 1994 to 1998 and Chair of the ICIS Execu- tive Committee in 2012. He taught IS courses on the Fall 1999 Semester at Sea voyage (Institute for Shipboard Education) and established the concept of Special Interest Groups in AIS in 2000. In 2014, he won an Emerald Citation of Excellence for a co-authored article that reached the top 50 in citations and ratings from the fields of management, business, and economics.

Dr. Galletta's current research addresses online and mobile usability and behavioral security issues such as phishing, protection motivation, and antecedents of security-related decision making. He has published his research in journals such as Management Science; MIS Quarterly; Information Systems Research; Journal of MIS; European Journal of Information Systems; Journal of the AIS; Communications of the ACM; Accounting, Management, and Information Technologies; Data Base; and Decision Sciences and in proceedings of conferences such as ICIS, AMCIS, and the Hawaii International Conference on Systems Sciences. Dr. Galletta's editorship includes working as current and founding Coeditor in Chief for AIS Transactions on Human-Computer Interaction and on editorial boards at journals such as MIS Quarterly, Information Systems Research, Journal of MIS, and Journal of the AIS. He is currently on the Pre-eminent Scholars Board of Data Base. He won a Developmental Associate Editor Award at the MIS Quarterly in 2006. And during the off-hours, Dr. Galletta's fervent hobby and obsession is digital pho- tography, often squinting through his eyepiece to make portrait, macro, Milky Way, and lightning photos when he should be writing.

..

Contents

Preface iv Acknowledgments vii About the Authors viii

Introduction 1

The Case for Participating in Decisions about Information Systems 2

What If a Manager Doesn't Participate? 5

Skills Needed to Participate Effectively in Information Technology Decisions 6

Basic Assumptions 8

Economics of Information versus Economics of Things 12

Social Business Lens 14

Summary 15

KeyTerms 16

The Information Systems Strategy Triangle 17

Brief Overview of Business Strategy Frameworks 19

Business Models versus Business Strategy 21

Brief Overview of Organizational Strategies 25

Brief Overview of Information Systems Strategy 26

Social Business Lens: Building a Social Business Strategy 27

Summary 28

KeyTerms 29

Discussion Questions 29

Case Study 1-1 Lego 30

Case Study 1-2 Google 31

2 Strategic Use of Information Resources 33 ------

Evolution of Information Resources 34

Information Resources as Strategic Tools 36

How Can Information Resources Be Used Strategically? 37

Sustaining Competitive Advantage 43

Social Business Lens, Social Capital 47

Strategic Alliances 47

Risks 49

Geographic Box: Mobile-Only Internet Users Dominate Emerging Countries 50

Co-Creating IT and Business Strategy 50

Summary 51

Key Terms 51

Discussion Questions 51

Case Study 2-1 Groupon 52

Case Study 2-2 Zipcar 53

3 Organizational Strategy and Information Systems 55

Information Systems and Organizational Design 58

Social Business Lens, Social Networks 63

Information Systems and Management Control Systems 63

Information Systems and Culture 66

Geographic Lens, Does National Culture Affect Firm Investment in IS Training? 70

Summary 71

KeyTerms 71

Discussion Questions 71

Contents 1111

Case Study 3-1 The Merger of Airtran by Southwest Airlines, Will the Organizational Cultures Merge? 72 Case Study 3-2 The FBI 73

4 Digital Systems and the Design of Work 75

Work Design Framework 77

How Information Technology Changes the Nature of Work 78

Social Business Lens, Activity Streams 84

Where Work Is Done and Who Does It: Mobile and Virtual Work Arrangements 86

Geographic Lens, How Do People Around the World Feel About Working Remotely? 88

Geographic Lens, Who Telecommutes? A Look at Global Telecommuting Habits 89

Gaining Acceptance for IT-Induced Change 94

Summary 96

KeyTerms 97

Discussion Questions 97

Case Study 4-1 Trash and Waste Pickup Services. Inc. 97

Case Study 4-2 Social Networking, How Does IBM Do It? 98

5 Information Systems and Business Transformation 99

Silo Perspective versus Business Process Perspective 100

Building Agile and Dynamic Business Processes 104

Changing Business Processes 105

Workflow and Mapping Processes 107

Integration versus Standardization 109

Enterprise Systems 110

Geographic Lens, Global vs. Local ERPs 113

Social Business Lens, Crowdsourcing Changes Innovation Processes 118

Summary 119

'-,. Key Terms 120

Ill Contents Discussion Questions 120

Case Study 5-1 Santa Cruz Bicycles 121

Case Study 5-2 Boeing 787 Dreamliner 122

6 Architecture and Infrastructure 124 ----·-···-·--·--------·------------

From Vision to Implementation 125

The Leap from Strategy to Architecture to Infrastructure 126

From Strategy to Architecture to Infrastructure, An Example 133

Architectural Principles 135

Enterprise Architecture 136

Virtualization and Cloud Computing 137

Other Managerial Considerations 139

Social Business Lens, Building Social Mobile Applications 143

Summary 144

Key Terms 144

Discussion Questions 145

Case Study 6-1 Enterprise Architecture at American Express 145

Case Study 6-2 The Case of Extreme Scientists 146

7 Security 147

IT Security Decision Framework 149

Breaches and How They Occurred 151

The Impossibility of 100% Security 154

What Should Management Do? 155

Summary 162

Key Terms 163

Discussion Questions 163

Case Study 7-1 The Aircraft Communications Addressing and Reporting System (ACARS) 163

Case Study 7-2 Sony Pictures, The Criminals Won 164

8 The Business of Information Technology 165

Organizing to Respond to Business, A Maturity Model 167

Understanding the IT Organization 168

What a Manager Can Expect from the IT Organization 168

What the IT Organization Does Not Do 170

Chief Information Officer 171

Building a Business Case 173

IT Portfolio Management 175

Valuing IT Investments 176

Monitoring IT Investments 177

Funding IT Resources 182

How Much Does IT Cost? 184

Summary 187

Key Terms 188

Discussion Questions 188

Case Study 8-1 KLM Airlines 189

Case Study 8-2 Balanced Scorecards at BIOCO 190

9 Governance of the Information Systems Organization 191

IT Governance 192

Decision-Making Mechanisms 199

Governance Frameworks for Control Decisions 200

Social Business Lens, Governing the Content 204

Summary 205

Key Terms 205

Discussion Questions 205

Case Study 9-1 IT Governance at University of the Southeast 205

Case Study 9-2 The "MyJohnDeere" Platform 207

10 Information Systems Sourcing 208

Sourcing Decision Cycle Framework 209

Social Business Lens, Crowdsourcing 214

Geographic Lens: Corporate Social Responsibility 220

Outsourcing in the Broader Context 224

Summary 225

Key Terms 225

Discussion Questions 225

Case Study 10-1 Crowdsourcing at AOL 225

Case Study 10-2 Altia Business Park 226

11 Managing IT Projects 228

What Defines a Project? 230

What Is Project Management? 231

Organizing for Project Management 232

Project Elements 233

IT Projects 239

IT Project Development Methodologies and Approaches 240

Social Business Lens: Mashups 247

Managing IT Project Risk 247

Summary 253

Key Terms 254

Discussion Questions 254

Contents

Case Study 11-1 Implementing Enterprise Change Management at Southern Company 254

Case Study 11-2 Dealing with Traffic Jams in London 255

m

Ill Contents .J 12 Business Intelligence. Knowledge Management. and Analytics 258

Competing with Business Analytics 259

Knowledge Management. Business Intelligence. and Business Analytics 260

Data. Information. and Knowledge 261

Knowledge Management Processes 264

Business Intelligence 264

Components of Business Analytics 265

Big Data 268

Social Media Analytics 269

Social Business Lens: Personalization and Real-Time Data Streams 271

Geographic Lens: When Two National Views of Intellectual Property Collide 272

Caveats for Managing Knowledge and Business Intelligence 274

Summary 274

Key Terms 275

Discussion Questions 275

Case Study 12-1 Stop & Shop's Scan It! App 275

Case Study 12-2 Business Intelligence at CKE Restaurants 276

13 Privacy and Ethical Considerations in Information Management 278

Responsible Computing 280

Corporate Social Responsibility 283

PAPA: Privacy. Accuracy. Property. and Accessibility 284

Social Business Lens: Personal Data 289

Geographic Lens: Should Subcultures Be Taken into Account When Trying to Understand National Attitudes Toward Information Ethics? 292

Green Computing 292

Summary 293

Key Terms 294

Discussion Questions 294

Case Study 13-1 Ethical Decision Making 295

Case Study 13-2 Midwest Family Mutual Goes Green 297

Glossary 299 Index 313

Introduction

Why do managers need to understand and participate in the information systems decisions of their organizations? After all, most corporations maintain entire departments dedicated to the management of information systems (IS). These departments are staffed with highly skilled professionals devoted to the field of technology. Shouldn't managers rely on experts to analyze all the aspects of IS and to make the best decisions for the organization? The answer to that question is an emphatic "no."

Managing information is a critical skill for success in today's business environment. All decisions made by companies involve, at some level, the management and use of IS and the interpretation of data from the business and its environment. Managers today need to know about their organization's capabilities and uses of information as much as they need to understand how to obtain and budget financial resources. The ubiquity of personal devices such as smart phones, laptops, and tablets and of access to apps within corporations and externally over the Internet, highlights this fact. Today's technologies form the backbone for virtually all business models. This backbone easily crosses oceans, adding the need for a global competency to the manager's skill set. Further, the proliferation of supply chain partnerships and the vast amount of technology available to individuals outside of the corporation have extended the urgent need for business managers to be involved in information systems decisions. In addition, the availability of seemingly free (or at least very inexpensive) appli- cations, collaboration tools, and innovation engines in the consumer arena has put powerful tools in everyone's hands, increasing the difficulty of ensuring that corporate systems are robust, secure, and protected. A manager who doesn't understand the basics of managing and using information can't be successful in this business environment.

The majority of U.S. adults own a smart phone and access online apps. According to the Pew Research Center, in 2014, 90% of U.S. adults had a cell phone of some kind, and 87% of American adults used the Internet. 1 Essentially the use of these types of devices implies that individuals now manage a "personal IS" and make decisions about usage, data, and applications. Doesn't that give them insight into managing information systems in corporations? Students often think they are experts in corporate IS because of their personal experience with technology. Although there is some truth in that perspective, it's a very dangerous perspective for managers to take. Certainly knowing about interesting apps, being able to use a variety of technologies for different personal purposes, and being familiar with the ups and downs of networking for their personal information systems pro- vide some experience that is useful in the corporate setting. But in a corporate setting, information systems must be enterprise-ready. They must be scalable for a large number of employees; they must be delivered in an appropriate manner for the enterprise; they must be managed with corpo- rate guidelines and appropriate governmental regulations in mind. Issues like security, privacy, risk, support, and architecture take on a new meaning within an enterprise, and someone has to manage them. Enterprise-level management and use of information systems require a unique perspective and a different skill set.

' Internet Use and Cell Phone Demographics, http://www.pewintemet.org/data-trend/internet-use/intemet-use-over-time (accessed August 18, 2015).

1111

lfll Introduction Consider the now-historic rise of companies such as Amazon.com, Google, and Zappos. Amazon.com began as

an online bookseller and rapidly outpaced traditional brick-and-mortar businesses like Barnes and Noble, Borders, and Waterstones. Management at the traditional companies responded by having their IS support personnel build Web sites to compete. But upstart Amazon.com moved ahead, keeping its leadership position on the Web by lever- aging its business model into other marketplaces, such as music, electronics, health and beauty products, lawn and garden products, auctions, tools and hardware, and more. It cleared the profitability hurdle by achieving a good mix of IS and business basics: capitalizing on operational efficiencies derived from inventory software and smarter storage, cost cutting, and effectively partnering with such companies as Toys "R" Us Inc. and Target Corporation. 2

More recently, Amazon.com changed the basis of competition in another market, but this time it was the Web ser- vices business. Amazon.com Web services offers clients the extensive technology platform used for Amazon.com but in an on-demand fashion for developing and running the client's own applications. Shoe retailer Zappos.com challenged Amazon's business model, in part by coupling a social business strategy with exemplary service and sales. It was so successful that Amazon.com bought Zappos.

Likewise, Google built a business that is revolutionizing the way information is found. Google began in 1999 as a basic search company but its managers quickly learned that its unique business model could be leveraged for future success in seemingly unrelated areas. The company changed the way people think about Web content by making it available in a searchable format with an incredibly fast response time and in a host of languages. Further, Google's keyword-targeted advertising program revolutionized the way companies advertise. Then Google expanded, offering a suite of Web-based applications, such as calendaring, office tools, e-mail, collaboration, shopping, and maps and then enhanced the applications further by combining them with social tools to increase collaboration. Google Drive is one of the most popular file-sharing tools and Gmail one of the most popular email apps. In 2015, Google's mission was to "organize the world's information and make it universally accessible and useful." It is offering its customers very inexpensive fiber connections. In so doing, Google further expanded into infrastructure and on-demand services. 3

These and other online businesses are able to succeed where traditional companies have not, in part because their .,,,,,J management understood the power of information, IS, and the Web. These exemplary online businesses aren't suc- ceeding because their managers could build Web pages or assemble an IS network. Rather, the executives in these new businesses understand the fundamentals of managing and using information and can marry that knowledge with a sound, unique business vision to dominate their intended market spaces.

The goal of this book is to provide the foundation to help the general business manager become a knowledge- able participant in IS decisions because any IS decision in which the manager doesn't participate can greatly affect the organization's ability to succeed in the future. This introduction outlines the fundamental reasons for taking the initiative to participate in IS decisions. Moreover, because effective participation requires a unique set of manage- rial skills, this introduction identifies the most important ones. These skills are helpful for making both IS decisions and all business decisions. We describe how managers should participate in the decision-making process. Finally, this introduction presents relevant models for understanding the nature of business and information systems. These models provide a framework for the discussions that follow in subsequent chapters.

The Case for Participating in Decisions about Information Systems In today's business environment, maintaining a back-office view of technology is certain to cost market share and could ultimately lead to the failure of the organization. Managers who claim ignorance of IS can damage their reputation. Technology has become entwined with all the classic functions of business-operations, marketing, accounting, finance-to such an extent that understanding its role is necessary for making intelligent and effec- tive decisions about any of them. Furthermore, a general understanding of key IS concepts is possible without the extensive technological knowledge required just a few years ago. Most managers today have personal technology

' Robert Hof, "How Amazon Cleared the Profitability Hurdle" (February 4, 2002), http://www.bloomberg.com/bw/stories/2002-02-03/how-amazon- cleared-the-profitability-hurdle (accessed on October 29, 2015). ' For more information on the latest services by these two companies, see http://aws.amazon.com/ec2 and http://www.google.com/enterprise/cloud/. .,,,,J

The Case for Participating in Decisions about Information Systems 11111

Reasons IS must be managed as a critical resource since it permeates almost every aspect of business.

--... ---·-·····-·······-.. ·-···-·- --·--------····----·-·····-- -----···---··----·-···---------------- IS enable change in the way people work both inside and outside of the enterprise.

··-·- ·-·- ·--·--- ·-·····-·- ···-···· ..... .. ·····--· - --- -------·· - ··-·······--· --········-- -·-·-··-··-- -··--· - ............ - ···--·-··-----

IS are at the heart of integrated Internet-based solutions that are replacing standard business processes . ..... -· .. - -······· ·- -·-· --- . ··--· . ·····- ···-·· .. . ... ···-·····. --· ·- ······-· -. ·-··· ·- .. ·---- --··· - ····- ... ········--. -·-·--·-- IS enable or inhibit business opportunities and new strategies.

····---------- -····- ·--····· ·-···- --··-·--······--·-

IS can be used to combat business challenges from competitors. --- ·-- --- -····--·--------------····----··------~------···--- -----·-----·---·----

IS enable customers to have greater pull on businesses and communities by giving them new options for voicing their concerns and opinions using social media.

·-·-·-····-··· --·····---····· -········---·····

IS can support data-driven decision making.

IS can help ensure the security of key assets.

FIGURE 1-1 Reasons why business managers should participate in information systems decisions.

such as a smart phone or tablet that is more functional than many corporate-supported personal computers provided by enterprises just a few years ago. In fact, the proliferation of personal technologies makes everyone a "pseudo- expert." Each individual must manage applications on smart phones, make decisions about applications to purchase, and procure technical support when the systems fail. Finally, with the robust number of consumer applications available on the Web, many decisions historically made by the IS group are increasingly being made by individuals outside that group, sometimes to the detriment of corporate objectives.

Therefore, understanding basic fundamentals about using and managing information is worth the investment of time. The reasons for this investment are summarized in Figure 1-1 and are discussed next.

6., A Business View of Critical Resources Information technology (IT) is a critical resource for today's businesses. It both supports and consumes a significant amount of an organization's resources. Just like the other three major types of business resources-people, money, and machines-it needs to be managed wisely.

IT spending represents a significant portion of corporate budgets. Worldwide IT spending topped $3.7 trillion in 2014. It is projected to continue to increase.4 A Gartner study of where this money goes groups spending into five categories including devices (e.g., PCs, tablets, and mobile phones), data center systems (e.g., network equipment, servers, and storage equipment), enterprise software and apps (e.g., companywide software applications), IT ser- vices (e.g., support and consulting services), and telecommunications (e.g., the expenses paid to vendors for voice and data services).

Resources must return value, or they will be invested elsewhere. The business manager, not the IS specialist, decides which activities receive funding, estimates the risk associated with the investment, and develops metrics for evaluating the investment's performance. Therefore, the business manager needs a basic grounding in managing and using information. On the flip side, IS managers need a business view to be able to explain how technology impacts the business and what its trade-offs are.

People and Technology Work Together In addition to financial issues, managers must know how to mesh technology and people to create effective work processes. Collaboration is increasingly common, especially with the rise of social networking. Companies are reaching out to individual customers using social technologies such as Facebook, Twitter, Reddit, Renren, YouTube, and numerous other tools. In fact, Web 2.0 describes the use of the World Wide Web applications that incorporate information sharing, user-centered design, interoperability, and collaboration among users. Technology facilitates

4.,. 4 http://www.gartner.com/newsroom/id/2959717/ (accessed March 5, 2015).

.. Introduction the work that people do and the way they interact with each other. Appropriately incorporating IS into the design of a business model enables managers to focus their time and resources on issues that bear directly on customer satisfaction and other revenue- and profit-generating activities.

Adding a new IS to an existing organization, however, requires the ability to manage change. Skilled business managers must balance the benefits of introducing new technology with the costs associated with changing the existing behaviors of people in the workplace. There are many choices of technology solutions, each with a different impact. Managers' decisions must incorporate a clear understanding of the consequences. Making this assessment doesn't require detailed technical knowledge. It does require an understanding of short-term and long-term con- sequences risk mitigation, and why adopting new technology may be more appropriate in some instances than in others. Understanding these issues also helps managers know when it may prove effective to replace people with technology at certain steps in a process.

Integrating Business with Information Systems IS are integrated with almost every aspect of business and have been for quite some time. For example, the CTO of @WalmartLabs, Jeremy King, wrote in a blog,

There used to be a big distinction between tech companies: those that develop enterprise technology for businesses, and the global companies that depend on those products. But that distinction is now diminishing for this simple reason: every global company is becoming a tech company .... we're seeing technology as a critical component for business success. 5

Walmart built platforms to support all of its ecommerce and digital shopping experiences around the world. Walmart's teams created a new search engine to enable engaging and efficient ways for on-line customers to find items in inventory. IS placed information in the hands of Walmart associates so that decisions could be made closer to the customer. IS simplified organizational activities and processes such as moving goods, stocking shelves, and ""'111 communicating with suppliers. For example, handheld scanners provide floor associates with immediate and real- time access to inventory in their store and the ability to locate items in surrounding stores, if necessary.

Opportunities and New Strategies Derived from Rapid Changes in Technology The proliferation of new technologies creates a business environment filled with opportunities. The rate of adop- tion of these new technologies has increased due in part to the changing demographics of the workforce and the integration of "digital natives," individuals whose entire lives have been lived in an era with Internet availability. Therefore digital natives are completely fluent in the use of personal technologies and the Web. Even today, inno- vative uses of the Internet produce new types of online businesses that keep every manager and executive on alert. New business opportunities spring up with little advance warning. The manager's role is to frame these oppor- tunities so that others can understand them, evaluate them against existing business needs and choices, and then pursue those that fit with an articulated business strategy. The quality of the information at hand affects the quality of both decisions and their implementation. Managers must develop an understanding of what information is cru- cial to the decisions, how to get it, and how to use it. They must lead the changes driven by IS.

Competitive Challenges Competitors come from both expected and unexpected places. General managers are in the best position to see the emerging threats and utilize IS effectively to combat ever-changing competitive challenges. Further, general man- agers are often called on to demonstrate a clear understanding of how their own technology programs and products

' Jeremy King. "Why Every Company Is a Tech Company'" (November 21, 2013). http://www.walmartlabs.com/2013/i 1/21/why-every-company-is-a- tech-company-by-jeremy-king-cto-of-walmartlabs (accessed August 18.2015).

What If a Manager Doesn't Participate? B compare with those of their competitors. A deep understanding of the capabilities of the organization coupled with existing IS can create competitive advantages and change the competitive landscape for the entire industry.

Customer Pull With the emergence of social networks like Facebook, microblogs like Twitter, and other Web applications like Yelp, businesses have had to redesign their existing business models to account for the change in power now wielded by customers and others in their communities. Social media and other web apps have given powerful voices to customers and communities, and businesses must listen. Redesigning the customer experience when inter- acting with a company is paramount for many managers and the key driver is IS. Social IT enables new and often deeper relationships with a large number of customers, and companies are learning how to integrate and leverage this capability into existing and new business models.

Data-Driven Decision Making Managers are increasingly using evidence-based management to make decisions based on data gathered from experiments, internal files, and other relevant sources. Data-driven decision making, based on new techniques for analytics, data management, and business intelligence, has taken on increased importance. Social media have cre- ated a rich stream of real-time data that gives managers increased insights to the impact of decisions much faster than traditional systems. Mid-course corrections are much easier to make. Predictive and prescriptive analytics give suggestions that are eerily close to what happens. Big data stores can be mined for insights that were unavailable with traditional IS, creating competitive advantage for companies with the right tools and techniques.

'-, Securing Key Assets As the use of the Internet grows, so does the opportunity for new and unforeseen threats to company assets. Taking measures to ensure the security of these assets is increasingly important. But decisions about security measures also impact the way IS can be used. It's possible to put so much security around IT assets that they are locked down in a manner that gets in the way of business. At the same time, too little security opens up the possibility of theft, hacking, phishing, and other Web-based mischief that can disrupt business. Managers must be involved in decisions about risk and security to ensure that business operations are in sync with the resulting security measures.

What If a Manager Doesn't Participate? Decisions about IS directly affect the profits of a business. The basic formula Profit = Revenue - Expenses can be used to evaluate the impact of these decisions. Adopting the wrong technologies can cause a company to miss business opportunities and any revenues those opportunities would generate. For example, inadequate IS can cause a breakdown in servicing customers, which hurts sales. Poorly deployed social IT resources can badly damage the reputation of a strong brand. On the expense side, a miscalculated investment in technology can lead to over- spending and excess capacity or underspending and restricted opportunity. Inefficient business processes sustained by ill-fitting IS also increase expenses. Lags in implementation or poor process adaptation reduces profits and there- fore growth. IS decisions can dramatically affect the bottom line.

Failure to consider IS strategy when planning business strategy and organizational strategy leads to one of three business consequences: (I) IS that fail to support business goals, (2) IS that fail to support organizational systems, and (3) a misalignment between business goals and organizational capabilities. These consequences are discussed briefly in the following section and in more detail in later chapters. The driving questions to consider are the poten- tial effects on an organization's ability to achieve its business goals. How will the consequences impact the way people work? Will the organization still be able to implement its business strategy?

ID Introduction

Information Systems Must Support Business Goals IS represent a major investment for any firm in today's business environment. Yet poorly chosen IS can actually become an obstacle to achieving business goals. The results can be disastrous if the systems do not allow the orga- nization to realize its goals. When IS lack the capacity needed to collect, store, and transfer critical information for the business, decisions can be impacted and options limited. Customers will be dissatisfied or even lost. Production costs may be excessive. Worst of all, management may not be able to pursue desired business directions that are blocked by inappropriate IS. Victoria's Secret experienced this problem when a Superbowl ad promoting an online fashion show generated so many inquiries to its Web site that the Web site crashed. Spending large amounts of money on the advertisement was wasted when potential customers could not access the site. Likewise, Toys "R" Us experienced a similar calamity when its well-publicized Web site was unable to process and fulfill orders fast enough one holiday season. It not only lost those customers, but it also had a major customer-relations issue to manage as a result.

Information Systems Must Support Organizational Systems Organizational systems represent the fundamental elements of a business-its people, work processes, tasks, struc- ture, and control systems-and the plan that enables them to work efficiently to achieve business goals. If the company's IS fail to support its organizational systems, the result is a misalignment of the resources needed to achieve its goals. For example, it seems odd to think that a manager might add functionality to a corporate Web site without providing the training the employees need to use the tool effectively. Yet, this mistake-and many more costly ones-occurs in businesses every day. Managers make major IS decisions without informing all the staff of resulting changes in their daily work. For example, an enterprise resource planning (ERP) system often dictates how many business processes are executed and the organizational systems must change to reflect the new processes. Deploying technology without thinking through how it actually will be used in the organization-who .,,,,J will use it, how they will use it, and how to make sure the applications chosen will actually accomplish what is intended-results in significant expense. In another example, a company may decide to block access to the Internet, thinking that it is prohibiting employees from accessing offensive or unsecure sites. But that decision also means that employees can't access social networking sites that may be useful for collaboration or other Web-based appli- cations that may offer functionality to make the business more efficient.

The general manager, who, after all, is charged with ensuring that company resources are used effectively, must guarantee that the company's IS support its organizational systems and that changes made in one system are reflected in the other. For example, a company that plans to allow employees to work remotely needs an information system strategy compatible with its organizational strategy. Desktop PCs located within the corporate office aren't the right solution for a telecommuting organization. Instead, laptop computers or tablets with applications that are accessible online anywhere and anytime and networks that facilitate information sharing are needed. Employees may want to use tablets or smart phones remotely, too, and those entail a different set of IS processes. If the orga- nization allows the purchase of only desktop PCs and builds systems accessible from desks within the office, the telecommuting program is doomed to failure.

Skills Needed to Participate Effectively in Information Technology Decisions Participating in IT decisions means bringing a clear set of skills to the table. All managers are asked to take on tasks that require different skills at different times. Those tasks can be divided into three types: visionary tasks, or those that provide leadership and direction for the group; informational/interpersonal tasks, or those that provide information and knowledge the group needs to be successful; and structural tasks, those that organize the group. Figure I-2 lists basic skills required of managers who wish to participate successfully in key IT decisions. Not only does this list emphasize understanding, organizing, planning, and solving the business needs of the organization, but also it is an excellent checklist for all managers' professional growth.

Skills Needed to Participate Effectively in Information Technology Decisions lfll

Managerial Role

Visionary

Informational and Interpersonal

Structural

Skills

Creativity

Curiosity

Confidence

Focus on business solutions

Flexibility

Communication

Listening

Information gathering

Interpersonal skills

Project management

Analytical

Organizational

Planning

Leading

Controlling ~-------------~-·----~~---·- --·---------·

FIGURE 1-2 Skills for successful IT use by managerial role.

These skills may not look much different from those required of any successful manager, which is the main point of this book: General managers can be successful participants in IS decisions without an extensive technical background. General managers who understand a basic set of IS concepts and who have outstanding managerial skills, such as those listed in Figure 1-2, are ready for the digital economy.

How to Participate in Information Systems Decisions Technical wizardry isn't required to become a knowledgeable participant in the IS decisions of a business. Man- agers need curiosity, creativity, and the confidence to ask questions in order to learn and understand. A solid frame- work that identifies key management issues and relates them to aspects of IS provides the background needed to participate in business IS decisions.

The goal of this book is to provide that framework. The way in which managers use and manage information is directly linked to business goals and the business strategy driving both organizational and IS decisions. Aligning business and IS decisions is critical. Business, organizational, and information strategies are fundamentally linked in what is called the Information Systems Strategy Triangle, discussed in the next chapter. Failing to understand this relationship is detrimental to a business. Failing to plan for the consequences in all three areas can cost a manager his or her job. This book provides a foundation for understanding business issues related to IS from a managerial perspective.

Organization of the Book To be knowledgeable participants, managers must know about both using and managing information. The first five chapters offer basic frameworks to make this understanding easier. Chapter 1 uses the Information Systems Strategy Triangle framework to discuss alignment of IS and the business. This chapter also provides a brief over- view of relevant frameworks for business strategy and organizational strategy. It is provided as background for those who have not formally studied organization theory or business strategy. For those who have studied these areas, this chapter is a brief refresher of major concepts used throughout the remaining chapters of the book.

• I nlroduction Subsequent chapters provide frameworks and sets of examples for understanding the links between IS and business strategy (Chapter 2), links between IS and organizational strategy (Chapter 3), collaboration and individual work (Chapter 4), and business processes (Chapter 5).

The rest of the text covers issues related to the business manager's role in managing IS itself. These chapters are the building blocks of an IS strategy. Chapter 6 provides a framework for understanding the four components of IS architecture: hardware, software, networks, and data. Chapter 7 discusses how managers might participate in decisions about IS security. Chapter 8 focuses on the business of IT with a look at IS organization, funding models, portfolios, and monitoring options. Chapter 9 describes the governance of IS resources. Chapter 10 explores sourc- ing and how companies provision IS resources. Chapter 11 focuses on project and change management. Chapter 12 concerns business intelligence, knowledge management, and analytics and provides an overview of how companies manage knowledge and create a competitive advantage using business analytics. And finally, Chapter 13 discusses the ethical use of information and privacy.

Basic Assumptions Every book is based on certain assumptions, and understanding those assumptions makes a difference in interpret- ing the text. The first assumption made by this text is that managers must be knowledgeable participants in the IS decisions made within and affecting their organizations. That means that the general manager must develop a basic understanding of the business and technology issues related to IS. Because technology changes rapidly, this text also assumes that today's technology is different from yesterday's technology. In fact, the technology available to readers of this text today might even differ significantly from that available when the text was being written. Therefore, this text focuses on generic concepts that are, to the extent possible, technology independent. It provides frameworks on which to hang more up-to-the-minute technological evolutions and revolutions, such as new uses of the Web, new social tools, or new cloud-based services. We assume that the reader will supplement the discussions of this text with current case studies and up-to-date information about the latest technology.

A second, perhaps controversial, assumption is that the roles of a general manager and of an IS manager require different skill sets and levels of technical competency. General managers must have a basic understanding of IS in order to be a knowledgeable participant in business decisions. Without that level of understanding, their decisions may have serious negative implications for the business. On the other hand, IS managers must have more in-depth knowledge of technology so they can partner with general managers who will use the IS. As digital natives take on increasingly more managerial roles in corporations, this second assumption may change-all managers may need deeper technical understanding. But for this text, we assume a different, more technical skill set for the IS manager and we do not attempt to provide that here.

Assumptions about Management Although many books have been written describing the activities of managers, organizational theorist Henry Mintzberg offers a view that works especially well with a perspective relevant to IS management. Mintzberg's model describes management in behavioral terms by categorizing the three major roles a manager fills: interper- sonal, informational, and decisional (see Figure 1-3). This model is useful because it considers the chaotic nature of the environment in which managers actually work. Managers rarely have time to be reflective in their approaches to problems. They work at an unrelenting pace, and their activities are brief and often interrupted. Thus, quality information becomes even more crucial to effective decision making. The classic view is often seen as a tactical approach to management, whereas some describe Mintzberg's view as more strategic.

Assumptions about Business Everyone has an internal understanding of what constitutes a business, which is based on readings and experi- ences with different firms. This understanding forms a model that provides the basis for comprehending actions, interpreting decisions, and communicating ideas. Managers use their internal model to make sense of otherwise

1ype of Roles

Interpersonal

Informational

I Decisional

Manager's Roles

Figurehead

Leader

~iaison I

Basic Assumptions g

IS Examples ·-·· •...............

' CIO greets touring dignitaries.

manager puts in long hours to help motivate project team to complete project on schedule in an environment of heavy budget cuts. i

·-·· ···--·-·-····! ' CIO works with the marketing and human resource vice presidents to · / make sure that the reward and compensation system is changed to encourage use of the new IS supporting sales.

Monitor Division manager compares progress on IS project for the division with

I I milestones developed during the project's initiation and feasibility phase.

Disseminator --;-CIO conveys organiz~tion's busine~s strategy to IS department and : demonstrates how IS strategy supports the business strategy.

,,_S_p_o-ke_s_p_e_r-so_n _____ : -IS_m_a-na_g_e_r -represents IS department at organization's recruiti~g fair. :

~

;;repreneur · IS division manager suggests an application of a new technology that improves the division's operational efficiency.

sturbance handler . IS division manager, as project team leader, helps resolve design I • disagreements between division personnel who will be using the system

Resource allocator

Negotiator

and analysts who are designing it.

allocates additional personnel positions to various departments based upon the business strategy.

IS manager negotiates for additional personnel needed to respond to recent user requests for enhanced functionality in a system that is being implemented.

~·-····-·-----··-~-------.-~. FIGURE 1-3 Managers· roles. Source: Adapted from H. Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973).

chaotic and random activities. This book uses several conceptual models of business. Some take a functional view and others take a process view.

Functional View The classical view of a business is based on the functions that people perform, such as accounting, finance, marketing, operations, and human resources. The business organizes around these functions to coordinate them and to gain economies of scale within specialized sets of tasks. Information first flows vertically up and down between line positions and management; after analysis, it may be transmitted across other functions for use elsewhere in the company (see Figure I-4).

Process View Michael Porter of Harvard Business School describes a business in terms of the primary and support activities that are performed to create, deliver, and support a product or service. The primary activities are not limited to specific functions, but rather are cross-functional processes (see Figure I-5). For example, an accounts payable process

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might involve steps taken by other departments that generate obligations, which the accounting department pays. Likewise, the product creation process might begin with an idea from R&D, which is transferred to an operations organization that builds the actual product and involves marketing to get the word out, sales to sell and deliver the product, and support to provide customer assistance as needed. This view takes into account the activities in each functional area that are needed to complete a process, and any organization can be described by the processes it performs. Improving coordination among activities increases business profit. Organizations that effectively manage core processes across functional boundaries are often the industry leaders because they have made efficiencies that 'ffllllfi are not visible from the functional viewpoint. IS are often the key to process improvement and cross-functional coordination.

Both the process and functional views are important to understanding IS. The functional view is useful when sim- ilar activities must be explained, coordinated, executed, or communicated. For example, understanding a marketing information system means understanding the functional approach to business in general and the marketing function in particular. The process view, on the other hand, is useful when examining the flow of information throughout a business. For example, understanding the information associated with order fulfillment, product development, or customer service means taking a process view of the business. This text assumes that both views are important for participating in IS decisions.

Assumptions about Information Systems Consider the components of an information system from the manager's viewpoint rather than from the technolo- gist's viewpoint. Both the nature of information (hierarchy and economics) and the context of an information system must be examined to understand the basic assumptions of this text.

Information Hierarchy

The terms data, information, and knowledge are often used interchangeably, but have significant and discrete mean- ings within the knowledge management domain (and are more fully explored in Chapter 12). Tom Davenport, in his book Information Ecology, pointed out that getting everyone in any given organization to agree on common defi- nitions is difficult. However, his work (summarized in Figure I-6) provides a nice starting point for understanding the subtle but important differences.

The information hierarchy begins with data, or simple observations; data are sets of specific, objective facts or observations, such as "inventory contains 45 units." Standing alone, such facts have no intrinsic meaning but can be easily captured, transmitted, and stored electronically. ..,,,,,J

Basic Assumptions •

Data Information I Knowledge -!-------- ---··--··-····

' Information from the human mind , Simple observations of the state i Data endowed with [ of the world ' relevance and purpose (includes reflection, synthesis,

Definition

i ' context)

Charact;risti~;- ~- Easil;;;;~~t~i;;d___ • Requires unit of analysis • Hard to structure I • Easily captured on machines • Data that have been • Difficult to capture on machines I • Often quantified processed • Often tacit I • Easily transferred • Human mediation • Hard to transfer ! • Mere facts necessary

Example ----·--1 ~:~!:;;::·~:!~~o ~~:ll . ~;;!~!:~hn;~z::~ortw :~:~t~;:s~::~e;; ~:~:~~i;:~f CEO of a large manufacturing economic order quantity in light of daily inventory report,

, -----··-- I company ---· ---··-··-·····-- lmevaenals-~s:e~n--t--to--in_v_e._n_t_o_r_y·----·~a-n-t-ic_i_p_a._t_e .. d ........ l .. a--b--o·--r -st·r·i-ke-·s-,····a--n··-d-·--- . _ _ a flood in Brazil that affects the

FIGURE 1-6 Comparison of data. information. and knowledge. Source: Adapted from Thomas Davenport, Information Ecology (New York: Oxford University Press, 1997).

Information is data endowed with relevance and purpose. 6 People turn data into information by organizing data into some unit of analysis (e.g., dollars, dates, or customers). For example, a mashup of location data and housing prices adds something beyond what the data provide individually, and that makes it information. A mashup is the term used for applications that combine data from different sources to create a new application on the Web.

To be relevant and have a purpose, information must be considered within the context in which it is received and used. Because of differences in context, information needs vary across functions and hierarchical levels. For example, when considering functional differences related to a sales transaction, a marketing department manager may be interested in the demographic characteristics of buyers, such as their age, gender, and home address. A man- ager in the accounting department probably won't be interested in any of these details, but instead wants to know details about the transaction itself, such as method of payment and date of payment.

Similarly, information needs may vary across hierarchical levels. These needs are summarized in Figure 1-7 and reflect the different activities performed at each level. At the supervisory level, activities are narrow in scope and focused on the production or the execution of the business's basic transactions. At this level, information is focused on day-to-day activities that are internally oriented and accurately defined in a detailed manner. The activ- ities of senior management are much broader in scope. Senior management performs long-term planning and needs

Top Management I

Middle Management Supervisory and Lower-Level Management ----·-··----··---· --- -----1 ·---·------·--- I - --------- --· - ·- --- ----j

Time Horizon Long: years I Medium: weeks, months, years I Short: day to day I Level of Detail t Highly aggregated /. Summarized I Very detailed

I Less accurate : Integrated Very accurate j

Sourc~----···-·--t~:~~fi~=!r!;~;l- -··-··········-··-···-; ~::r~::~~:~~al ~ith.li~ited ____ -tf l~~~~nfinan~~------1 I external I

--7,tremely judgmental \ Relatively judgmental j Heavily reliant on rules 1 1 , Uses creativity and analytical I 1

1 skills I I J _L:"_··----·-···----. ---····· _____ L _______ ·····-· ··----·---·-·-··--·----..J.. -

Decision

FIGURE 1-7 Information characteristics across hierarchical levels. Source: G. Adapted from Anthony Gorry and Michael S. Scott Morton, "A Framework for Management Information Systems," Sloan Management Review 13, no. 1, 55-70.

4., 6 Peter F. Drucker, "The Coming of the New Organization," Harvard Business Review (January-February 1988), 45-53.

lfl Introduction information that is aggregated, externally oriented, and more subjective than supervisors require. The information needs of middle managers in terms of these characteristics fall between the needs of supervisors and of senior management. Because information needs vary across levels, a daily inventory report of a large manufacturing firm may serve as information for a low-level inventory manager whereas the CEO would consider such a report to be merely data. The context in which the report is used must be considered in determining whether it is information.

Knowledge is information that is synthesized and contextualized to provide value. It is information with the most value. Knowledge consists of a mix of contextual information, values, experiences, and rules. For example, the mash up of locations and housing prices means one thing to a real estate agent, another thing to a potential buyer, and yet something else to an economist. It is richer and deeper than information and more valuable because someone thought deeply about that information and added his or her own unique experience and judgment. Knowledge also involves the synthesis of multiple sources of information over time.7 The amount of human contribution increases along the continuum from data to information to knowledge. Computers work well for managing data but are less efficient at managing information and knowledge.

Some people think there is a fourth level in the information hierarchy: wisdom. Wisdom is knowledge fused with intuition and judgment that facilitates the ability to make decisions. Wisdom is that level of the information hierarchy used by subject matter experts, gurus, and individuals with a high degree of experience who seem to "just know" what to do and how to apply the knowledge they gain. This is consistent with Aristotle's view of wisdom as the ability to balance different and conflicting elements together in ways that are only learned through experience.

Economics of Information versus Economics of Things In their groundbreaking book, Blown to Bits, Evans and Wurster argued that every business is in the information business.8 Even those businesses not typically considered information businesses have business strategies in which information plays a critical role. The physical world of manufacturing is shaped by information that dominates ... ~ products as well as processes. For example, an automobile contains as much computing power as a personal com- ~ puter. Information-intensive processes in the manufacturing and marketing of the automobile include design, market research, logistics, advertising, and inventory management. The automobile itself, with its millions of lines of code, has become a computer on wheels with specialized computers and sensors alerting the driver of its health and road conditions. When taken in for service, maintenance crews simply plug an electronic monitor into the auto- mobile to analyze and identify worn parts or other areas in need of upgrades and repair.

As our world is reshaped by information-intensive industries, it becomes even more important for business strat- egies to differentiate the timeworn economics of things from the evolving economics of information. Things wear out; things can be replicated at the expense of the manufacturer; things exist in a tangible location. When sold, the seller no longer owns the thing. The price of a thing is typically based on production costs. In contrast, information never wears out, although it can become obsolete or untrue. Information can be replicated at virtually no cost without limit; information exists in the ether. When sold, the seller still retains the information, but this ownership provides little value if the ability of others to copy it is not limited. Finally, information is often costly to produce but cheap to reproduce. Rather than pricing it to recover the sunk cost of its initial production, its price is typically based on its value to the consumer. Figure I-8 summarizes the major differences between the economics of goods and the economics of information.

Evans and Wurster suggest that traditionally the economics of information has been bundled with the economics of things. However, in this Information Age, firms are vulnerable if they do not separate the two. The Encyclopedia Britannica story serves as an example. Bundling the economics of things with the economics of information made it difficult for Encyclopedia Britannica to gauge two serious threats. The first threat was posed by Encarta, an entire encyclopedia on a CD-ROM that was given away to promote the sale of computers and peripherals. The second was Wikipedia, which is freely available to all and updated on a nearly real-time basis continuously by thousands of

7 Thomas H. Davenport, Information Ecology (New York: Oxford University Press, 1997), 9-10. 8 Philip Evans and Thomas Wurster, Blown to Bits (Boston: Harvard Business School Press, 2000).

Economics of Information versus Economics of Things Ill

Things Information

Wear out Doesn't wear out but can become obsolete or untrue !

~r=_n~_i:,licated at the expense of the manufacturer 1

Is replicate_ci_~_t almost_~=~~-~~;-:;_;i-t~~~!Ji~i~--- -- -- --- ~-j

.:~~l~~~:i~~:~~;~::,:haod~ ········= ·=~~::;::~:.:~;::::~~~d~;[~::~-.J FIGURE 1-8 Comparison of the economics of things with the economics of information.

volunteers; currently Wikipedia reports that it holds over 4.9 million articles, receives 10 edits per second globally, and boasts 750 new pages added each day. 9 In contrast, Encyclopedia Britannica published volumes every several years and the price was between $1,500 and $2,200, covering printing and binding ($250) and sales commissions ($500 to $600). 10

Britannica focused on its centuries-old tradition of providing information in richly bound tomes sold to the public through a well-trained sales force. Only when it was threatened with its very survival did Encyclopedia Britannica grasp the need to separate the economics of information from economics of things and sell bits of information online. Clearly, Encyclopedia Britannica's business strategy, like that of many other companies, needed to reflect the difference between the economics of things from the economics of information.

Internet of Things

More recently, a new concept has emerged to describe the explosive growth in the data generated by sensors traveling over the Web. The Internet of things (loT) is the term used to refer to machines and sensors talking to each other over the network, taking Evans and Wurster's concepts even further. Although the term IoT was coined in1999, 11 it was not widely discussed until the current decade. The earliest example of its functions was reported before the Internet even existed-in a Coke machine at Carnegie Mellon University in the mid-1970s. Staff mem- bers and students in the Computer Science Department were able to use a network connecting a minicomputer and sensors in the machine to monitor not only the machine's inventory but even which button to push for the coldest bottles. 12

A more broadly used early application of IoT was provided by Otis Elevator in the late 1980s and later copied by most other elevator companies. 13 Sensors in elevators send alerts over a network to a service center's computer when parts need replacing, and service technicians arrive without the builder owner knowing about the potential problem. Extending loT even further, today's elevator systems alert handheld devices of nearby repair technicians who then visit the elevator to make the repair. Devices may connect to the Internet over a wireless connection or through a hard-wired connection.

Many say that we are on the brink of a new revolution that will be as impactful as the popularization of the World-Wide Web. The IoT has already been applied to large number of "things"--extending to home appliances, automobiles, thermostats, lighting, pets, and even people. 14 Many people can already perform futuristic functions using smartphone apps. They can remotely check the status of their heart monitor, tire pressure, or subway train's location. They can locate a lost pet or valuable object. They can reset their thermostat, tum off lights, and record a program on their DVR even after having left for vacation.

9 Wikipedia Statistics. http://en.wikipedia.org/wiki/Wikipedia:Statistics (accessed August 18, 2015). '° Evans and Wurster, Blown to Bits. 11 K. Ashton, "That 'Internet of Things' Thing," RFID Journal (June 22, 2009), http://www.rfidjournal.com/articles/view?4986 (accessed May 26, 2015). 12 Attributed to The Carnegie Mellon University Computer Science Department Coke Machine, "The 'Only' Coke Machine on the Internet," https://www. cs.cmu.edu/-coke/history _long.txt (accessed May 26, 2015). 13 D. Freedman, "The Myth of Strategic IS," C/0 Magazine (July l 991 ). 42--48. 6., " Internet of Things, Whatis.com, http://whatis.techtarget.com/definition/Internet-of-Things (accessed May 26, 2015).

Ill Introduction

Social Business Lens

The explosion of consumer-based technologies, coupled with applications such as Facebook, Renren, Sina

Weibe, Twitter, Linkedln, You Tube, Foursquare, Skype, Pinterest, and more have brought into focus the concept of

a social business. Some call this trend the consumerization of technology. Consumerization means that technol-

ogies such as social tools, mobile phones, and Web applications targeted at individual, personal users are cre-

ating pressures for companies in new and unexpected ways. At the same time, technologies initially intended for

the corporation, like cloud computing, are being retooled and "consumerized" to appeal to individuals outside

the corporation.

In this text, we use the term social business to refer to an enterprise using social IT for business applications, activities and processes. We sometimes say that a social business has infused social capabilities into business

processes.

Social business is permeating every facet of business. There are new business models based on a social IT

platform that offer new ways of connecting with stakeholders in functions such as governing, collaborating, doing

work, and measuring results. In this book, we are particular about the terminology we use. Social /Tis the term we

use for all technologies in this space. We define social IT as the technologies used for people to collaborate, net- work, and interact over the Web. These include social networks and other applications that provide for interaction

between people.

Many use the term social media as an overarching term for this space, but increasingly, social media refers to the marketing and sales applications of social IT, and we use it that way. Social networks are a specific type of tool,

like Facebook, Ning, and similar tools. Social networking is the use of these types of social IT tools in a community. As of the writing of this text, the social space is still like the Wild West; there are no widely accepted conventions

about the terms and their meanings or the uses and their impacts. But we have enough experience with social

IT that we know it's a major force bursting on to the enterprise scene and it must be addressed in discussions of

managing and using information systems.

Look in chapters for the feature "Social Business Lens" where we explore one topic related to that chapter from

1 a social business perspective. I

The reader might already be using the loT with one or more of these apps. However, vendors tell us we "ain't seen nothing yet." The potential impact of IoT is limited by the number of objects connected and apps available to monitor and control them. As the number of devices directly connected to the Internet increases, researchers and IT

Management

Information Systems

People Technology Process

FIGURE 1-9 System hierarchy.

Summary Ill professionals expect an exponential increase in IoT functionality and usage. 15 In the coming years, Internet traffic will dramatically increase along with an explosion in the amount of information generated by these devices.

System Hierarchy

Information systems are composed of three main elements: technology, people, and process (see Figure 1-9). When most people use the term information system, they actually refer only to the technology element as defined by the organization's infrastructure. In this text, the term infrastructure refers to everything that supports the flow and processing of information in an organization, including hardware, software, data, and network components whereas architecture refers to the blueprint that reflects strategy implicit in combining these components. Information sys- tems (IS) are defined more broadly as the combination of technology (the "what"), people (the "who"), and process (the "how") that an organization uses to produce and manage information. In contrast, information technology (IT) focuses only on the technical devices and tools used in the system. We define information technology as all forms of technology used to create, store, exchange, and use information. Many people use the terms IS and IT inter- changeably. In recent years, "IT" has been more fashionable, but that changes as fashions change.

SUMMARY

Aligning information systems and business decisions is no longer an option; it's an imperative for business. Every business oper- ates as an information-based enterprise. In addition, the explosive growth of smart phones, tablets, social tools, and Web-based businesses provides all managers with some experience in information systems and some idea of the complexity involved in providing enterprise-level systems. This highlights the need for all managers to be skilled in managing and using IS.

It is no longer acceptable to delegate IS decisions to the management information systems (MIS) department alone. The general manager must be involved to both execute business plans and protect options for future business vision. IS and business maturity must be aligned to provide the right level of information resources to the business.

This chapter makes the case for general managers' full participation in strategic business decisions concerning IS. It out- lines the skills required for such participation, and it makes explicit certain key assumptions about the nature of business, management, and IS that will underlie the remaining discussions. Subsequent chapters are designed to build on these concepts by addressing the following questions.

Frameworks and Foundations

• How should information strategy be aligned with business and organizational strategies? (Chapter 1)

• How can a business achieve competitive advantages using its IS? (Chapter 2)

• How do organizational decisions impact IS decisions? (Chapter 3)

• How is the work of the individual in an organization affected by decisions concerning IS? (Chapter 4)

• How are information systems integrated with business processes? (Chapter 5)

IS Management Issues

• What are the components of an IS architecture? (Chapter 6)

• How are IS kept secure? (Chapter 7)

• How is the IT organization managed and funded? (Chapter 8)

• How are IS decisions made? (Chapter 9)

• What source should provide IS services and how and where should they be provided? (Chapter 10)

II. " Jared Newman. "Right Now, the Internet of Things Is Like the Internet of the 1990s," Fast Company (March 27, 20151, http://www.fastcompany . .., com/3044375/sector-forecasting/the-future-of-the-internet-of-things-is-like-the-internet-of-the-1990s (last accessed May 26, 2015).

- Introduction • How are IS projects managed and risks from change management mitigated? (Chapter 11) • How is business intelligence managed within an organization? (Chapter 12)

• What ethical and moral considerations bind the uses of information in business? (Chapter 13)

KEY TERMS architecture (p. 14) data (p. 10) digital natives (p. 4) information (p. 11) information system (p. 14) information technology (p. 14)

infrastructure (p. 14) internet of things (p. 13) knowledge (p. 12) mashup (p. 11) social business (p. 15) social IT (p. 15)

social media (p. 15) social networking (p. 15) Web 2.0 (p. 3) wisdom (p. 12)

The Information Systems Strategy Triangle

The Information Systems Strategy Triangle highlights the alignment necessary between decisions regarding business strategy, information systems, and organizational design. This chapter reviews models of business strategy, organizational strategy and design, and information systems strategy. It concludes with a simple framework for creating a social business strategy.

In February 2015, 1 health care giant Kaiser Permanente named Dick Daniels to the CIO position and the leadership team for the next stage of the company's business strategy: to provide better health care at lower costs. To achieve those goals, Kaiser Permanente, one of the nation's largest not-for-profit health care systems with over 9.5 million members and 2014 operating revenue of $56.4 billion, invested in numerous information systems projects aimed at streamlining operations, offering new

._ services, and meeting government obligations. For example, in 2014, 13% of all the medical appoint- - ments were fulfilled digitally-through e-mail-to the delight of patients who did not have to make

a trip to the doctor's office and to the delight of doctors who were able to check in on their patients, particularly those with chronic conditions, more frequently. Doctors particularly liked this because their annual bonuses were based, in part, on improvements in patient health metrics such as lower blood pressure, reduced blood sugar levels if at risk for diabetes, and improvement in cholesterol scores rather than on the number of tests they ordered or the total billing they brought in. The organi- zation invested heavily in video conferencing technology, mobile apps, and analytics as they finished implementing a $4 billion electronic health records system, KP HealthConnect.

KP HealthConnect began in 2003, but by 2008, all members had online access to their health records; by 2010, all system services were available at all medical offices and hospitals in the system; and by 2012, all members had access to their health records on mobile devices. Kaiser Permanente has been a regular innovator in the use of technologies, being one of the first health care organiza- tions to experiment with chat rooms, secure messaging, and private e-mail correspondence between patients, physicians, and care providers. The new system connects each member to all caregivers and services available at Kaiser Permanente. Further, it enabled patients to participate in the health care they received at a new level and access information directly from the system.

The organizational design supported the business strategy of better health care at lower costs. 2

At the core of this strategy was a shift from a "fix-me system" with which patients seek health care when something is broken and needs repair to a system that was truly proactive and focused on pro- moting health. Under the "fix-me system," health care was expensive and often sought too late to

1 http://blogs.wsj.com/cio/2015/02/09/kaiser-permanente-names-richard-dick-daniels-cio/; http:/ !fortune .com/2015/04/29/kaiser- ceo-on-healthcare/; http:i/fortune.com/2014/07/24/a-health-care-model-thats-working/; Paul Gray, Omar Sawy. Guillermo Asper, and Magnus Thordarson, "Realizing Strategic Value Through Center-Edge Digital Transformation in Consumer-Centric Industries:· MIS Quarterly Executive 12, no. 1 (March 2013).

• 2 Note that the organizational design puts the organizational strategy into practice. For instance, rewarding billings, sharing little

- information. and late involvement with patients are organizational design elements of a "fix-me" organizational strategy.

chaJJler

1

m

ID The Information Systems Strategy Triangle fix the problem. Instead, the Kaiser Permanente strategy focused on promoting health, enabling identification of problems before they became serious issues. For example, those in need of more exercise may receive a prescription to take a walk and an e-mail reminder from health care providers to reinforce the new behavior. Staff incentive systems were aligned with this behavior, too. Physicians were all paid a flat salary and end-of-year bonuses if their patients achieved better health. All caregivers were rewarded for guiding people into making behavioral choices that were likely to keep them well.

The success at Kaiser Permanente was achieved in part because of the alignment between its business strategy, its information systems strategy, and its organization design. Physicians were part of the decision-making processes. Managers were involved in the design and implementation of the information systems. The decision to move from a "fix-me system" to a "proactive health system" was not made in isolation from the organization or the information systems.

The information systems (IS) department is not an island within a firm. Rather, IS manages an infrastructure that is essential to the firm's functioning. Further, the Kaiser Permanente case illustrates that a firm's IS must be aligned with the way it manages its employees and processes. For Kaiser Permanente, it was clear that not only did the physicians need a fast, inexpensive, and useful way to communicate with patients outside of regular in-person appointments but also incentive systems and patient service processes had to be updated. Information systems provided a solution in conjunction with new operational and control processes.

This chapter introduces a simple framework for describing the alignment necessary with business systems and for understanding the impact of IS on organizations. This framework is called the Information Systems Strategy Triangle because it relates business strategy with IS strategy and organizational strategy. This chapter also presents key frameworks from organization theory that describe the context in which IS operates as well as the business imperatives that IS support. The Information Systems Strategy Triangle presented in Figure 1.1 suggests three key points about strategy.

1. Successful firms have an overriding business strategy that drives both organizational strategy and IS strat- egy. The decisions made regarding the structure, hiring practices, vendor policies, and other components of .,,,,J the organizational design, as well as decisions regarding applications, hardware, and other IS components, are all driven by the firm's business objectives, strategies, and tactics. Successful firms carefully balance these three strategies-they purposely design their organization and their IS strategies to complement their business strategy.

2. IS strategy can itself affect and is affected by changes in a firm's business and organizational design. To perpetuate the balance needed for successful operation, changes in the IS strategy must be accompanied by changes in the organizational strategy and must accommodate the overall business strategy. If a firm designs its business strategy to use IS to gain strategic advantage, the leadership position in IS can be sustained only by constant innovation. The business, IS, and organizational strategies must constantly be adjusted.

3. IS strategy always involves consequences-intended or not-within business and organizational strategies. Avoiding harmful unintended consequences means remembering to consider business and organizational strategies when designing IS implementation. For example, deploying tablets to employees without an accompanying set of changes to job expectations, process design, compensation plans, and business tac- tics will fail to achieve expected productivity improvements. Success can be achieved only by specifically designing all three components of the strategy triangle so they properly complement each other.

Organizational Strategy

FIGURE 1.1 The Information Systems Strategy Triangle.

Business Strategy

Information Strategy

Brief Overview of Business Strategy Frameworks lfl Before the changes at Kaiser Permanente, incentives for doctors were misaligned with the goals of better health

care. Its IS Strategy Triangle was out of alignment at that time. Its organizational strategy (e.g., a "fix-me" system) was not supported by the IS strategy (e.g., tracking and reporting billable procedures). Neither the organizational strategy nor the IS strategy adequately supported their purported business strategy (helping patients at lower cost). For Kaiser Permanente, success could be achieved only by specifically designing all three components of the strategy triangle to work together.

Of course, once a firm is out of alignment, it does not mean that it has to stay that way. To correct the misalign- ment described earlier, Kaiser Permanente used on-line services to enable quick communications between patients, physicians, and care providers. Further, it changed its bonus structure to focus on health rather than billing amounts. The new systems realign people, process, and technology to provide better service, save time, and save money.

What does alignment mean? The book Winning the 3-Legged Race defines alignment as the situation in which a company's current and emerging business strategy is enabled and supported yet unconstrained by technology. The authors suggest that although alignment is good, there are higher states, namely synchronization and convergence, toward which companies should strive. With synchronization, technology not only enables current business strategy but also anticipates and shapes future business strategy. Convergence goes one step further by exhibiting a state in which business strategy and technology strategy are intertwined and the leadership team members operate almost interchangeably. Although we appreciate the distinction and agree that firms should strive for synchronization and convergence, alignment in this text means any of these states, and it pertains to the balance between organizational strategy, IS strategy, and business strategy.3

A word of explanation is needed here. Studying IS alone does not provide general managers with the appropriate perspective. This chapter and subsequent chapters address questions of IS strategy squarely within the context of business strategy. Although this is not a textbook of business strategy, a foundation for IS discussions is built on some basic business strategy frameworks and organizational theories presented in this and the next chapter. To be effective, managers need a solid sense of how IS are used and managed within the organization. Studying details of technologies is also outside the scope of this text. Details of the technologies are relevant, of course, and it is important that any organization maintain a sufficient knowledge base to plan for and adequately align with business priorities. However, because technologies change so rapidly, keeping a textbook current is impossible. Instead, this text takes the perspective that understanding what questions to ask and having a framework for interpreting the answers are skills more fundamental to the general manager than understanding any particular technology. That understanding must be constantly refreshed using the most current articles and information from experts. This text provides readers with an appreciation of the need to ask questions, a framework from which to derive the ques- tions to ask, and a foundation sufficient to understand the answers received. The remaining chapters build on the foundation provided in the Information Systems Strategy Triangle.

Brief Overview of Business Strategy Frameworks A strategy is a coordinated set of actions to fulfill objectives, purposes, and goals. The essence of a strategy is setting limits on what the business will seek to accomplish. Strategy starts with a mission. A mission is a clear and compelling statement that unifies an organization's effort and describes what the firm is all about (i.e., its purpose). Mark Zuckerberg's reflection on the mission of Facebook provides an interesting example. Originally conceived as a product rather than a service, the CEO of Face book commented, "after we started hiring more people and building out the team, I began to get an appreciation that a company is a great way to get a lot of people involved in a mission you're trying to push forward. Our mission is getting people to connect."4

In a few words, the mission statement sums up what is unique about the firm. The information in Figure 1.2 indi- cates that even though Zappos, Amazon, and L.L. Bean are all in the retail industry, they view their missions quite differently. For example, Zappos' focus is on customer service, Amazon is about customer sets, and L.L. Bean is

' F. Hogue, V. Sambamurthy, R. Zrnud, T. Trainer, and C. Wilson, Winning the 3-Legged Race (Upper Saddle River, NJ: Prentice Hall, 2005). 4 Shayndi Raice, "Is Facebook Ready for the Big Time?" The Wall Street Journal (January 14-15, 2012), B 1.

El The Information Systems Strategy Triangle

; Company 1---------· · Zappos

, Amazon

· L.L. Bean

! Mission Statement ! To provide the best customer service possible. Internally we call this our WOW philosophy.a

+···-··-----·-··· ·····-······--·-····-·· -·-· - -------- ·--- ---··

l We seek to be Earth's most customer-centric company for three primary customer sets: consumer l customers, seller customers and developer customers.b : Sell good merchandise at a reasonable profit, treat your customers like human beings and they will · come back for more.c

'http://about.zappos.com (accessed March 19, 2015). b http://www.amazon.com Mission Statement on Amazon Investor Relations page (accessed March 19, 2015). 'http://www.llbean.com/customerService/aboutllBean/company_values.html (accessed March 19, 2015).

FIGURE 1.2 Mission statements of three retail businesses.

about the merchandise and treating people the right way. It's interesting to note that although Amazon purchased Zappos in 2009, the acquisition agreement specified that Zappos would continue to run independently of its new parent. Today, Zappos continues to remain both culturally and physically separate from Amazon. Zappos is located near Las Vegas, Nevada, and Amazon is in Seattle, Washington.

A business strategy is a plan articulating where a business seeks to go and how it expects to get there. It is the means by which a business communicates its goals. Management constructs this plan in response to market forces, customer demands, and organizational capabilities. Market forces create the competitive context for the business. Some markets, such as those faced by package delivery firms, laptop computer manufacturers, and credit card issuers, face many competitors and a high level of competition, such that product differentiation becomes increasingly difficult. Other markets, such as those for airlines and automobiles, are similarly characterized by high competition, but product differentiation is better established. Customer demands comprise the wants and needs of the individuals and companies who purchase the products and services available in the marketplace. Organizational capabilities include the skills and experience that give the corporation a currency that can add value 'fflll in the marketplace.

Consider Dell, originally a personal computer company. Initially Dell's business strategy was to sell personal computers directly to the customer without going through an intermediary. Reaching customers in this way was less expensive and more responsive than selling the computers in retail stores. The Internet, combined with Dell's well-designed IS infrastructure, allowed customers to electronically contact Dell, which then designed a PC for a customer's specific needs. Dell's ordering system was integrated with its production system and shared information automatically with each supplier of PC components. This IS enabled the assembly of the most current computers without the expense of storing large inventories, and inventory uncertainties were pushed back to the vendors. Cost savings were passed on to the customer, and the direct-to-customer model allowed Dell to focus its production capacity on building only the most current products. With small profit margins and new products quickly able to replace existing products, IS aligned with Dell's business strategy to provide low-cost PCs. The cost savings from the IS was reflected in the price of systems. In addition, Dell executives achieved a strategic advantage in reducing response time, building custom computers that had one of the industry's lowest costs, and eliminating inventories that could become obsolete before they are sold. Thus, this business strategy was consistent with Dell's mission of delivering the best customer experience in the markets it serves.

But things aren't always as they seem. If the direct-to-customer strategy was so effective, why is Dell now also selling its computers at major retail outlets such as Walmart, Staples, and Best Buy? It is likely that the sales figures and profit margins were not measuring up to Dell's stated objectives and performance targets. And Dell has branched out to other hardware, such as printers and servers, and more recently, providing IT services. Con- sequently, Dell adjusted its business strategy, and we can expect to see changes in its organizational design and information systems to reflect its altered direction.

Now consider your favorite dot-com company. Every dot-com company has a business strategy of delivering its products or services over the Internet. To do so, the dot-corns need organizations filled with individuals and processes that support this business strategy. Their employees must be Internet savvy; that is, they must have

Brief Overview of Business Strategy Frameworks Bl

= Business Models versus Business Strategy Some new managers confuse the concept of a business model with the concept of a business strategy. The

business strategy, as discussed in this chapter, is the coordinated set of actions used to meet the business goals and objectives. It's the path a company takes to achieve its goals. One of the components of the business strategy

is the business model, the design of how the business will make money and how customers will get value from its

products and services. Some might argue that a business model is the outcome of strategy.*

Some examples of business models commonly seen in the digital world includet:

• Subscription: Customers pay a recurring fee for the product or service. • Advertising: Customers access the product or service for "free," and sponsors or vendors pay fees for

advertising that goes with the product or service. • Cost plus: Somewhat like a traditional retailer, customers purchase the product or service for a specific price

that is usually the cost plus some markup for profit.

• Renting/Licensing: Customers pay a fee to use the product or service for a specified period of time. • All-you-can-Eat: Customers pay one fee for access to as much of the product or service as they want to

consume, usually over a specific period of time.

• Freemium: Customers get something for "free," and the company makes money from selling customers something after they get the giveaway. This is similar to a business model used in brick-and-mortar busi-

nesses that give away something or sell something for a very low price, but the customer has to pay for

refills or upgrades such as giving razors away but making money from selling razor blades.

*For a more dPtai[,,d treatment of the com·epts of business models. strategy. and tactics. see Hamon Casadesus-Masanell and Joan

Hicart. ··From Strate/(y to Business \lod,·b and to Tactics:· Harvard Business School working paper 10-0:16. http://www.hbs.edu/

faculty/Puhlicatio11'%20Filt>s/ I 0-0:31,.pdf (accessPd August 21.2015 ).

·:·For a list of 1:, differPnt lrnsinpss models. see http://www.digitallrnsi1wssmodelgurn.corn/2012/12/15-lmsiness-rnodels-complete- list.html (aet'.PSS('" .\lll(IISt 21. 201.i).

skills and knowledge that are relevant to the dot-com business. Their processes must support the dot-com strategy. Imagine what would happen if the order process for their services was not Internet based. It seems silly to even consider a dot-com that would insist that orders be placed in person or even by telephone. The dot-com processes are aligned with companies' on-line-based business strategy. Further, their IS strategy must also be aligned with their processes. It would be equally silly to expect information to be based on paper files rather than electronic files.

A classic, widely used model developed by Michael Porter still frames most discussions of business strategy. In the next section, we review Porter's generic strategies framework as well as dynamic environment strategies.5 We then share questions that a general manager must answer to understand the business' strategy.

The Generic Strategies Framework Companies sell their products and services in a marketplace populated with competitors. Michael Porter's frame- work helps managers understand the strategies they may choose to build a competitive advantage. In his book Competitive Advantage, Porter claims that the "fundamental basis of above-average performance in the long run is sustainable competitive advantage."6 Porter identified three primary strategies for achieving competitive advantage: (1) cost leadership, (2) differentiation, and (3) focus. These advantages derive from the company's relative position

5 Another popular model by Michael Porter. the value chain, provides a useful model for discussing internal operations of an organization. Some find it a useful model for understanding how to link two firms. This framework is used in Chapter 5 to examine business process design. For further information, see M. Porter, Competitive Advantage, I st ed. (New York: The Free Press, 1985). 6 M. Porter. Competitive Advantage: Creating and Sustaining Superior Pe,formance, 2nd ed. (New York: The Free Press, 1998).

fil The Information Systems Strategy Triangle

Strategic Advantage

Q) \ Uniqueness perceived by customer Low-cost position e> i!! ···-··-· - u lndustrywide Differentiation Cost leadership ·rn 2 ~ Particular segment only Focus ci5 !

FIGURE 1.3 Three strategies for achieving competitive advantage. Source: Adapted from M. Porter, Competitive Advantage, 1st ed. (New York: The Free Press, 1985) and Competitive Advantage: Creating and Sustaining Superior Performance, 2nd ed. (New York: The Free Press, 1998).

in the marketplace, and they depend on the strategies and tactics used by competitors. See Figure 1.3 for a summary of these three strategies for achieving competitive advantage.

Cost leadership results when the organization aims to be the lowest-cost producer in the marketplace. The organization enjoys above-average performance by minimizing costs. The product or service offered must be comparable in quality to those offered by others in the industry so that customers perceive its relative value. Typ- ically, only one cost leader exists within an industry. If more than one organization seeks an advantage with this strategy, a price war ensues, which eventually may drive the organization with the higher cost structure out of the marketplace. Through mass distribution, economies of scale, and IS to generate operating efficiencies, Walmart epitomizes the cost-leadership strategy.

Through differentiation, the organization offers its product or service in a way that appears unique in the mar- ketplace. The organization identifies which qualitative dimensions are most important to its customers and then finds ways to add value along one or more of those dimensions. For this strategy to work, the price charged cus- tomers for the differentiator must seem fair relative to the price charged by competitors. Typically, multiple firms 'flll/lJ in any given market employ this strategy. Progressive Insurance is able to differentiate itself from other automobile insurance companies.

In its earlier days, Progressive Insurance's service was unique. Representatives responded to accident claims 24-7, arriving at the scene of the accident with powerful laptops and software that enabled them to settle claims and cut a check on the spot. More recently, Progressive was the first to offer a usage-based insurance product, called Snapshot, that bases insurance rates on the miles driven by customers. These innovations enabled a strategy that spurred Progressive's growth and widened its profit margins. Apple Inc. is another example of a company that com- petes in its markets on its ability to differentiate its products. Apple's various innovations in its operating system, laptop design, iPads, iPhones, iPods, iTunes and iWatches have created a strategy based on the uniqueness of its products and services.

Focus allows an organization to limit its scope to a narrower segment of the market and tailor its offerings to that group of customers. This strategy has two variants: (1) cost focus, in which the organization seeks a cost advantage within its segment and (2) differentiation focus, in which it seeks to distinguish its products or services within the segment. This strategy allows the organization to achieve a local competitive advantage even if it does not achieve competitive advantage in the marketplace overall. Porter explains how the focuser can achieve compet- itive advantage by focusing exclusively on certain market segments:

Breadth of target is clearly a matter of degree, but the essence of focus is the exploitation of a narrow target's differ- ences from the balance of the industry. Narrow focus in and of itself is not sufficient for above-average performance.7

Marriott International demonstrates both types of focus with two of its hotel chains: Marriott has a cost focus, and Ritz-Carlton has a differentiation focus. To better serve its business travelers and cut operational expenses, Marriott properties have check-in kiosks that interface with their Marriott Rewards loyalty program. A guest can swipe a credit card or Marriott Rewards card at the kiosk in the lobby and receive a room assignment and keycard

7 Porter. Competitive Advantage: Creating and Sustaining.

Brief Overview of Business Strategy Frameworks m from the machine. She can also print airline boarding passes at the kiosks. Further, the kiosks help the Marriott chain implement its cost focus by cutting down on the personnel needed in at the front desk. The kiosk system is integrated with other systems such as billing and customer relationship management (CRM) to generate operating efficiencies and enhanced corporate standardization.

In contrast, stand-alone kiosks in the lobby would destroy the feeling that the Ritz-Carlton chain, acquired by Marriott in 1995, creates. To the Ritz-Carlton chain, CRM means capturing and using information about guests, such as their preference for wines, a hometown newspaper, or a sunny room. Each Ritz-Carlton employee is expected to promote personalized service by identifying and recording individual guest preferences. To demon- strate how this rule could be implemented, a waiter, after hearing a guest exclaim that she loves tulips, could log the guest's comments into the Ritz-Carlton CRM system called "Class." On her next visit to a Ritz-Carlton hotel, tulips could be placed in the guest's room after querying Class to learn more about her as her visit approaches. The CRM is instrumental in implementing the differentiation-focus strategy of the Ritz-Carlton chain.8 Its strategy allows the Ritz-Carlton chain to live up to its unique motto which emphasizes that its staff members are distinguished people with distinguished customers.

Airline JetBlue adopted a differentiation strategy based on low costs coupled with unique customer experience. It might be called a "value-based strategy." It is not the lowest cost carrier in the airline industry; at 12.3 cents per passenger seat mile, JetBlue has one of the lowest costs, but Virgin America, Spirit, and Allegiant had even lower per seat mile costs in 2013. But JetBlue manages its operational costs carefully, making decisions that keep its per passenger costs among the lowest in the business, such as a limited number of airplane models in its fleet, gates at less congested airports, paperless cockpit and many other operations, and snacks instead of meals on flights. Jet- Blue has one of the longest stage length averages (the length of the average flight) in the industry, and the longer the flight, the lower the unit costs. Competing network carriers, who are more well known and established, may have different pay scales because they've been in the business longer and have a different composition of staff. These carriers also have higher maintenance costs for their older, more diverse fleets. If it could realize its plans for growth while maintaining its low cost structure, JetBlue could move from its cost focus based on serving a limited, but growing, number of market segments to a cost leadership strategy.9

While sustaining a cost focus, JetBlue's chairman believes that JetBlue can compete on more than price, which is part of its unique differentiation strategy. It is why the airline continually strives to keep customers satisfied with frills such as extra leg room, leather seats, prompt baggage delivery, DirectTV, and movies. It has been recognized with many awards for customer satisfaction in the North American airline industry.

Dynamic Environment Strategies Porter's generic strategies model is useful for diagnostics, for understanding how a business seeks to profit in its chosen marketplace, and for prescriptions, or building new opportunities for advantage. It reflects a careful balancing of countervailing competitive forces posed by buyers, suppliers, competitors, new entrants, and substitute products and services within an industry. As is the case with many models, dynamic environment strategies offer managers useful tools for thinking about strategy.

However, the Porter model was developed at a time when competitive advantage was sustainable because the rate of change in any given industry was relatively slow and manageable. Since the late 1980s, when this frame- work was at the height of its popularity, newer models have been developed to take into account the increasing turbulence and velocity of the marketplace. Organizations need to be able to respond instantly and change rapidly, which requires dynamic structures and processes. One example of this type of approach is the hypercompetition framework. Discussions of hypercompetition take a perspective different from that of the previous framework. Por- ter's framework focuses on creating competitive advantage in relatively stable markets, whereas hypercompetition frameworks suggest that the speed and aggressiveness of the moves and countermoves in a highly competitive and

8 Scott Berinato, "Room for Two, .. C/0.com (May 15, 2002), http://www.cio.com/archive/05 l 502/two_content.html. 9 http://www.oliverwyman.com/content/dam/oliver-wyman/global/en/2014/nov / Airline _Economic_Analysis_Screen_ OW _Nov _2014.pdf (accessed March 23, 2015).

fl'I The Information Systems Strategy Triangle turbulent market create an environment in which advantages are rapidly created and eroded. In a hypercompetitive market, trying to sustain a specific competitive advantage can be a deadly distraction because the environment and the marketplace change rapidly. To manage the rapid speed of change, firms value agility and focus on quickly adjusting their organizational resources to gain competitive advantage. Successful concepts in hypercompetitive markets include dynamic capabilities, creative destruction, and blue ocean strategy. 10

Dynamic capabilities are means of orchestrating a firm's resources in the face of turbulent environments. In particular, the dynamic capabilities framework focuses on the ways a firm can integrate, build, and reconfigure internal and external capabilities, or abilities, to address rapidly changing environments. These capabilities are built rather than bought. They are embedded in firm-specific routines, processes, and asset positions. Thus, they are difficult for rivals to imitate. In sum, they help determine the speed and degree to which the firm can marshal and align its resources and competences to match the opportunities and requirements of the business environment. 11

Since the 1990s, a competitive practice, called creative destruction, has emerged. First predicted over 60 years ago by the economist Joseph Schumpeter, it was made popular more recently by Harvard Professor Clay Christensen. Coincidentally (or maybe not), the accelerated competition has occurred concomitantly with sharp increases in the quality and quantity of information technology (IT) investment. The changes in competitive dynamics are particu- larly striking in sectors that spend the most on IT. 12

One example of using dynamic models was implemented by leadership guru Jack Welch at General Electric (GE). Often nicknamed "Neutron Jack" because of the way businesses were radically changed, Welch's approach to creative destruction was termed destroy your business (DYB). Welch recognized that GE could sustain its com- petitive advantage only for a limited time as competitors attempted to outmaneuver the company. He knew that if GE did not identify its weaknesses, its competitors would relish doing so. DYB is an approach that places GE employees in the shoes of their competitors. 13 Through the DYB lenses, GE employees develop strategies to destroy the company's competitive advantage. Then, in light of their revelations, they apply the grow your business (GYB) strategy to find fresh ways to reach new customers and better serve existing ones. This allows GE to protect its .,,,, business from its competitors and sustain its position in the marketplace over the long run.

A similar strategy of cannibalizing its own products was used by Apple. Steve Jobs, Apple's founder and former CEO, felt strongly that if a company was not willing to cannibalize its own products, someone else would come along and do it for them. That was evident in the way Apple introduced the iPhone while iPod sales were brisk and the iPad while its Macintosh sales were strong. 14 Apple continues to exhibit this strategy with subsequent releases of new models of all of its products.

Most discussions of strategy focus on gaining competitive advantage in currently existing industries and mar- ketplaces, which are referred to by Kim and Mauborgne as red ocean strategy. Using a red ocean strategy, firms fiercely compete to earn a larger share of existing demand. Kim and Mauborgne recommend a better approach: Firms adopt a blue ocean strategy in which they create new demand in untapped marketspaces where they have the "water" to themselves. When applying the blue ocean strategy, the goal is not to beat the competition but to make it irrelevant. This is what Dell did when it challenged current industry logic by changing the computer purchasing and delivery experiences of its customers. "With its direct sales to customers, Dell was able to sell its PCs for 40 percent less than IBM dealers while still making money." 15 Dell also introduced into unchartered seas an unprec- edented delivery process that allowed buyers to receive their new computers within four days of ordering them as compared to the red ocean process, which typically required 10 weeks.

1° For more information. please see Don Goeltz. "Hypercompetition," vol. I of The Encyclopedia of Management Theory, ed. Eric Kessler (Los Angeles: Sage, 2013), 359-60. 11 D. J. Teece. G. Pisano. and A. Shuen, "Dynamic Capabilities and Strategic Management," Strategic Management Journal 18 (1997), 509-33; David Teece, "Dynamic Capabilities," vol. 1 of The Encyclopedia of Management Theory, ed. Eric Kessler (Los Angeles: Sage, 2013), 221-24. 12 Andrew McAfee and Erik Brynjolfsson. "Investing in the IT That Makes a Competitive Difference," Har\'(/rd Business Review (July-August 2008). 98-107. 13 M. Levinson, "GE Uses the Internet to Grow Business," C/0 (October 15, 2001 ). http://www.cio.com/article/30624/HOT_TOPIC_E_BUSINESS_ GE_Uses_the_Intemet_to_Grow_Business_ (accessed May 5, 2012). 14 Walter Isaacson, Steve Jobs (New York: Simon and Shuster. 2011 ). 15 W. Chan Kim and Renee Mauborgne, Blue Ocean Strategy (Cambridge, MA: Harvard Business School, 2005), 202. ...Iii

Brief Overview of Organizational Strategies m Strategic Approach Key Idea Application to Information Systems

• Firms achieve competitive advantage I Understanding which strategy is chosen through cost leadership, differentiation, by a firm is critical to choosing IS to

Porter's generic strategies

or focus.

1

complement the strategy.

Dynamic environme-n·-t-st .. r.a····t···e ... g ... i.e-·s····· ·~··Speed, agility, and aggressive moves The speed of change is too fast for

: and countermoves by a firm create l manual response, making IS critical to

_· _co_m_p_e_ti_tiv_e_ad_va_n_t_ag_e_. ______ ~[_a_c_h_ie_v_in_g_b_u_s_ine_ss_g_o_a_l_s. ______ ~ FIGURE 1.4 Summary of strategic approaches and IT applications.

Why Are Strategic Advantage Models Essential to Planning for Information Systems? A general manager who relies solely on IS personnel to make IS decisions may not only give up any authority over IS strategy but also hamper crucial future business decisions. In fact, business strategy should drive IS decision making, and changes in business strategy should entail reassessments of IS. Moreover, changes in IS potential should trigger reassessments of business strategy-as in the case of the Internet when companies that understood or even considered its implications for the marketplace quickly outpaced their competitors who failed to do so. For the purposes of our model, the Information Systems Strategy Triangle, understanding business strategy means answering the following questions:

1. What is the business goal or objective?

2. What is the plan for achieving it? What is the role of IS in this plan?

3. Who are the crucial competitors and partners, and what is required of a successful player in this marketplace?

4. What are the industry forces in this marketplace?

Porter's generic strategies framework and the dynamic frameworks (summarized in Figure 1.4) are revisited in the next few chapters. They are especially helpful in discussing the role of IS in building and sustaining competitive advantages (Chapter 2) and for incorporating IS into business strategy. The next section of this chapter establishes a foundation for understanding organizational strategies.

Brief Overview of Organizational Strategies Organizational strategy includes the organization's design as well as the choices it makes to define, set up, coor- dinate, and control its work processes. How a manager designs the organization impacts every aspect of opera- tions from dealing with innovation to relationships with customers, suppliers, and employees. The organizational strategy is a plan that answers the question: "How will the company organize to achieve its goals and implement its business strategy?"

A useful framework for organizational design can be found in the book Building the Information Age Orga- nization by Cash, Eccles, Nohria, and Nolan. 16 This framework (Figure 1.5) suggests that the successful execu- tion of a company's organizational strategy comprises the best combination of organizational, control, and cultural variables. Organizational variables include decision rights, business processes, formal reporting relationships, and informal networks. Control variables include the availability of data, nature and quality of planning, effectiveness of performance measurement and evaluation systems, and incentives to do good work. Cultural variables comprise the values of the organization. These organizational, control, and cultural variables are managerial levers used by decision makers to effect changes in their organizations. These managerial levers are discussed in detail in Chapter 3.

4-., " James I. Cash, Robert G. Eccles, Ni tin Nohria, and Richard L Nolan, Building the /nfonnation Age Organization (Homewood, IL: Richard D. Irwin, 1994).

m The Information Systems Strategy Triangle

Strategy

FIGURE 1.5 Managerial Levers model.

Execution

Culture

Organizational effectiveness

Source: J. Cash, R. G. Eccles, N. Nohria, and R. L. Nolan, Building the Information Age Organization (Homewood, IL: Richard D. Irwin, 1994).

Our objective is to give the manager a framework to use in evaluating various aspects of organizational design. In this way, the manager can review the current organization and assess which components may be missing and what future options are available. Understanding organizational design means answering the following questions:

1. What are the important structures and reporting relationships within the organization?

2. Who holds the decision rights to critical decisions?

3. What are the important people-based networks (social and informational), and how can we use them to get work done better?

4. What are the characteristics, experiences, and skill levels of the people within the organization?

5. What are the key business processes?

6. What control systems (management and measurement systems) are in place?

7. What are the culture, values, and beliefs of the organization?

The answers to these questions inform the assessment of the organization's use of IS. Chapters 3, 4, and 5 use the Managerial Levers model to assess the impact of information systems (IS) on the firm. Chapters 8 and 9 use this same list to understand the business and governance of the IS organization.

Brief Overview of Information Systems Strategy IS strategy is the plan an organization uses to provide information services. IS allow a company to implement its business strategy. JetBlue's former Vice President for People explains it nicely: "We define what the business needs and then go find the technology to support that." 17

Business strategy is a function of competition (What does the customer want and what does the competition do?), positioning (In what way does the firm want to compete?), and capabilities (What can the firm do?). IS help

17 Hogue et al., Winning the 3-Legged Race, I 11.

Brief Overview of Information Systems Strategy 1fi1

What

Hardware The physical devices of the system

Software The programs, applications, and · utilities

Networking / The way hardware is connected to \ other hardware, to the Internet, and : to other outside networks

Who

I ) System users and managers

-1- i System users and managers; I company that provides the : service

-·-------+----

Data i Bits of information stored in the system

FIGURE 1.6 IS strategy matrix.

i Owners of data; data ; administrators

Where

. The hardware it resides on and physical location of that hardware

Where the nodes, the wires, and other transport media are located

Where the information resides

determine the company's capabilities. An entire chapter is devoted to understanding key issues facing general man- agers concerning IT architecture, but for now a more basic framework is used to understand the decisions related to IS that an organization must make.

The purpose of the matrix in Figure 1.6 is to give the manager a high-level view of the relation between the four IS infrastructure components and the other resource considerations that are keys to IS strategy. Infrastructure

= Social Business Lens: Building a Social Business Strategy Some companies use social IT as point solutions for business opportunities, but others build a social business

strategy that considers the application of social IT tools and capabilities to solve business opportunities holisti-

cally. A social business strategy is a plan of how the firm will use social IT that is aligned with its organizational strat-

egy and IS strategy. Social business strategy includes a vision of how the business would operate if it seamlessly

and thoroughly incorporated social and collaborative capabilities throughout the business model. It answers the

same type of questions of what, how, and who, as do many other business strategies.

Social businesses infuse social capabilities into their business processes. Most of the social business opportu-

nities fall into one of three categories:

Collaboration-using social IT to extend the reach of stakeholders, both employees and those outside the enterprise walls. Social IT such as social networks enable individuals to find and connect with each other to

share ideas, information, and expertise.

Engagement-using social IT to involve stakeholders in the traditional business of the enterprise. Social IT such as

communities and blogs provide a platform for individuals to join in conversations, create new conversations,

and offer support to each other and other activities that create a deeper feeling of connection to the company,

brand, or enterprise.

Innovation-using social IT to identify, describe, prioritize, and create new ideas for the enterprise. Social IT offers community members a "super idea box" where individuals suggest new ideas, comment on other ideas, and

vote for their favorite idea, giving managers a new way to generate and decide on products and services.

National Instruments (ni.com) is an example of a company that has embraced social IT and created a social

business strategy. Managers developed a branded community consisting of a number of social IT tools like Face-

book, Twitter, blogs, forums, and more. By thinking holistically about all the ways that customers and employees

might interact with one another, the branded community has become the hub of collaboration, engagement, and

idea generation.

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161 The Information Systems Strategy Triangle

includes hardware, such as desktop units and servers. It also includes software, such as the programs used to do business, to manage the computer itself and to communicate between systems. The third component of IS infra- structure is the network, which is the physical means by which information is exchanged among hardware com- ponents. Examples include fiber networks such as Google Fiber, cable networks such as those provided by Time Warner, AT&T, and Comcast, WiFi provided by many local services, and 3G/4G/WiMax technologies (which are actually Internet communication standards, but some phone companies adopt those terms as the name of networks they offer). Some communications are conducted through a private digital network, managed by an internal unit). Finally, the fourth part of the infrastructure is the data. The data include the bits and bytes stored in the system. In current systems, data are not necessarily stored alongside the programs that use them; hence, it is important to understand what data are in the system and where they are stored. Many more detailed models of IS infrastructure exist, and interested readers may refer to any of the dozens of books that describe them. For the purposes of this text, the IS strategy matrix provides sufficient information to allow the general manager to assess the critical issues in information management.

Because of the advanced state of technology, many managers are more familiar with the use of platforms and applications, or apps. Platforms are technically any set of technologies upon which other technologies or appli- cations run. Often they are a combination of hardware and operating system software. Microsoft Windows and Apple's Macintosh with its latest operating system are two examples of platforms. Also common are mobile plat- forms such as the iPhone and Samsung/Android phone. Applications or apps, on the other hand, are self-contained software programs that fulfill a specific purpose and run on a platform. The term "apps" became popular from the smart phone industry, beginning when Apple offered an online marketplace for customers to download small pro- grams to run on their devices. But more recently, because all platforms have applications that run on them, the term apps has taken on a broader meaning.

SUMMARY

The Information Systems Strategy Triangle represents a simple framework for understanding the impact of IS on businesses. It relates business strategy with IS strategy and organizational strategy and implies the balance that must be maintained in business planning. The Information Systems Strategy Triangle suggests the following management principles.

Business Strategy Business strategy drives organizational strategy and IS strategy. The organization and its IS should clearly support defined business goals and objectives.

• Definition: A well-articulated vision of where a business seeks to go and how it expects to get there

• Example Models: Porter's generic strategies model; dynamic environment models

Organizational Strategy Organizational strategy must complement business strategy. The way a business is organized either supports the implementation of its business strategy or it gets in the way.

• Definition: The organization's design, as well as the choices it makes to define, set up, coordinate, and control its work processes

• Example Model: managerial levers

IS Strategy IS strategy must complement business strategy. When IS support business goals, the business appears to be working well. IS strategy can itself affect and is affected by changes in a firm's business and organizational strategies. Moreover, IS strategy always has consequences-intended or not-on business and organizational strategies.

Discussion Questions • • Definition: The plan the organization uses in providing information systems and services

• Models: A basic framework for understanding IS decisions for platform, applications, network and data-relating architecture (the "what"), and the other resource considerations ("who" and "where") that represent important planning constraints

Strategic Relationships Organizational strategy and information strategy must complement each other. They must be designed so that they support, rather than hinder, each other. If a decision is made to change one corner of the triangle, it is necessary to evaluate the other two corners to ensure that balance is preserved. Changing business strategy without thinking through the effects on the organization and IS strategies will cause the business to struggle until balance is restored. Likewise, changing IS or the organization alone will cause an imbalance.

KEY TERMS

apps (p. 27) blue ocean strategy (p. 24)

business model (p. 20) business strategy (p. 21) collaboration (p. 28) cost leadership (p. 22) creative destruction (p. 24) differentiation (p. 22)

dynamic capabilities (p. 24)

engagement (p. 28) focus (p. 22)

hypercompetition (p. 23) Information Systems Strategy

Triangle (p. 18) innovation (p. 28) IS strategy (p. 26)

DISCUSSION QUESTIONS

managerial levers (p. 25)

mission (p. 19) organizational strategy (p. 25) red ocean strategy (p. 24)

social business strategy (p. 27) strategy (p. 19)

1. Why is it important for business strategy to drive organizational strategy and IS strategy? What might happen if the business strategy was not the driver?

2. In 2015, the NFL decided to hand out Microsoft Surface tablets to all coaches for use during games, and there are reports that in the future, they will add HoloLens devices to provide augmented reality. 18 A HoloLens device is a high-definition, head-mounted display that allows coaches to see the plays with text and animation superimposed right on the live images. If the NFL simply handed them out without making any other formal changes in organizational strategy or business strategy, what might be the outcome? What unintended consequences might occur?

3. Consider a traditional manufacturing company that wants to build a social business strategy. What might be a reasonable business strategy, and how would organization and IS strategy need to change? How would this differ for a restaurant chain? A consumer products company? A nonprofit?

4. This chapter describes key components of an IS strategy. Describe the IS strategy of a consulting firm using the matrix framework.

5. What does this tip from Fast Company mean: 'The job of the CIO is to provide organizational and strategic flexibility"? 19

18 Sean Michael, "NFL Teams Will Use Surface Pro 3s in 2015 and May Use HoloLens in the Future," WinBeta (August 7, 2015), http://www.winbeta. org/news/nfl-teams-will-use-surface-pro-3s-2015-and-may-use-hololens-future (accessed August 21, 2015). 19 "Technology: How much'' How fast'? How revolutionary'> How expensive'>" Fast Company (March 2002), http://www.fastcompany.com/44651/ technology-how-much-how-fast-how-revolutionary-how-expensive (accessed August 21, 2015).

ll!I The Information Systems Strategy Triangle

• CASE STUDY 1-1 Lego

Lego has long been an industry leader in children's toys with its simple yet unique building block-style products. A Danish

carpenter whose family still owns Lego today founded the privately held company in 1932. But by 2004, the company found itself close to extinction, losing$ I million a day. A new CEO was brought in, and within five years sales were strong, profits

were up, and naysayers who felt the new strategy was going to fail were proved wrong. In fact, sales, revenues and profits

continued to be strong. Revenues grew from 16 billion Danish krone (DKK) in 2010 to over 28 billion DKK in 2014, and in the same period, profit almost doubled from 3.7 billion DKK to 7 billion DKK.

With the advent of high-tech forms of entertainment, such as the iPod and PlayStation, Lego found itself more antique

than cutting edge in the toy world. When new CEO Jorgen Vig Knudstorp, a father and former McKinsey consultant, took over, the company was struggling with poor performance, missed deadlines, long development times, and a poor delivery record. The most popular toys frequently would be out of stock, and the company was unable to ship enough products or

manage the production of its more complicated sets. Retail stores were frustrated, and that translated into reduced shelf

space and ultimately to business losses. Knudstorp changed all of that. He reached out to top retailers, cut costs, and added missing links to the supply chain. For

example, prior to the new strategy, 90% of the components were used in just one design. Designers were encouraged to reuse

components in their new products, which resulted in a reduction from about 13,000 different Lego components to 7,000. Because each component's mold could cost up to 50,000 euros on average to create, this reduction saved significant expense.

Lego was known for its traditional blocks and components that would allow children to build just about anything their imagination could create. The new strategy broadened the products, targeting new customer segments. Lego managers cre- ated products based on themes of popular movies, such as Star Wars and the Indiana Jones series. The company moved

into video games, which featured animated Lego characters sometimes based on movies. The company created a product strategy for adults and engaged the communities who had already set up thousands of Web sites and biogs featuring Lego creations. It embraced the community who thought of Lego as a way to create art rather than simply as a building toy. And

the company designed a line of Legos aimed at girls because the majority of its products had primarily targeted boys. The culture of Lego changed to one that refused to accept nonperformance. The company's past showed a tendency to

focus on innovation and creativity, often at the expense of profits. But that changed. "Knudstorp ... made it clear that results,

not simply feeling good about making the best toys, would be essential if Lego was to succeed .... Its business may still be fun and games, but working here isn't,"20 describes the current culture at Lego.

Some of the most drastic changes came from within the Lego organization structure. After its massive losses in 2004, Lego switched its employee pay structure, offering incentives for appropriate product innovation and sales. Key performance

indicators encourage product innovation that catalyzes sales while decreasing costs. Development time dropped by 50%, and some manufacturing and distribution functions were moved to less expensive locations, but the focus on quality remained. The creation of reusable parts alleviated some of the strain on Lego's supply chain, which in tum helped its bottom line.