Uniwersytet Gdaski
Summary
The opportunity for enterprises to realize benefits from IT and IS has been pos-sible ever since its early use for business application. However the rising e-business in the last decade has caused a particular focus on the use of IT investment to define the enterprises’ strategies. In an economy in which less than 20 percent of economic activity consists of creating, processing, or moving physical goods, the old sources of competitive advantage - access to raw materials, transportation routes, or customer markets; low costs; and a large labor pool - are becoming less important[1]. As an increasing share of economic inputs and outputs are in the form of electronic bits, the old location factors diminish in importance. As more companies become knowl-edge-based, instead of resource-, labor-, or capital-based, the success factors have been transformed [2]. Thus the aim of the paper is to analyze strategic benefits aris-ing from IT investment in the enterprises and define position of the IT strategies in global enterprise’s strategy.
Keywords: information technology, enterprise strategy, IT investments, 1. Introduction
The increasing share of companies are gaining competitive advantage from innovation, qual-ity, and productivity-driven cost reductions. Nowadays most industries and companies, even "tra-ditional ones" are organizing work around technology. While the "high-tech" companies develop new technologies, to be successful all companies must be using advanced technology.
As the competitive pressure on organizations has changed over the last for decades, so the ex-pectations from information technology (IT) in helping to meet those challenges also have changed [4]. The early days of IT adoption within organizations were characterized by the auto-mation of routine activities to improve efficiency. As IT adoption become more widespread, the emphasis began to shift from using IT solely to reduce costs to also using it to improve the quality of companies’ operation and products( see Table 1) [5].
Table 1. The development of IT support for business
Decade Market demands Ideal company IT performance
criteria 1960s Price The efficient firm Efficiency
1970s Price, quality The quality firm Efficiency+ quality 1980s Price, quality, choice/
deliv-ery time
The flexible firm Efficiency+ quality + flexibility
1990s and beyond
Price, quality, choice/ deliv-ery time, uniqueness
The innovating firm Efficiency + quality + flexibility + innovate ability
Source: Renkema T.: The IT Value Quest: How to Capture the Business Value of IT-Based Infra-structure. John Wilkey&Sons, Chichester 2000, p.154.
Many organizations developed new business models, often where IT is not simply a support to the existing organization but was the organization [3], giving the organization born during the dot.com era as an example – such as Amazon or Lastminute.com. However, a number of compa-nies that preexisted that era have made such significance use of IT to run their internal operations and to work with suppliers and customers that IT is now key to their existence. In the organization which hasn’t adopted IT to such level, it can still offer significant strategic benefits. Among such strategic benefits arising from IT investment, one can include [6]:
• support for the organization’s strategy or vision, • long- or short-term viability of the organization, • provide customers with unique value proposition, • desire to be seen to be innovative,
• permit new business models, • permit new forms of organization, • build barriers to entry,
• “lock in” customers,
• geographic or market expansion.
Despite the above benefits, it’s worth to mention the benefits on the management and opera-tion levels, such as better control through improved informaopera-tion, growing skills of the workforce, meeting the highest professional standards, more effective use of existing IT systems, improved quality at reduced costs.
However, it’s not that simply for a company to adapt the IT systems to obtain these benefits. Moreover, the statistic indicates that over 70% of IT projects are seen to fail to deliver the in-tended benefits. Even in the 2004 some IT projects overran their estimated timescales by 63% and spent their average allocated budget by 45% over [6].This may be due to a number of reasons. Fist of all, it couldn’t be believed that all organization needs to do to improve its performance is to implement a given application.
The report by the ISociety states that “…new technology is not transformational on its own … appropriate use requires considerable complementary investment in people, processes, culture and support … some or all of this things are usually missing” [7].
According to the model developed by C. Soh and M.L. Marcus, there are three steps involved in creating value from IT [7]:
1. conversion of the purchased IT into the assets which can be used in a company; 2. the effective use of those assets by a company;
3. this effective use must be transformed into meaningful improvements in organizational performance.
2. Strategic IT investments - success factors
Having in mind all these steps, there are still some factors determining a success of IT in-vestments. According to the 1994 Standish CHAOS Report [9], there are significant differences found between the successful and failed projects. Among the top factors found in the“failed” projects, they included incomplete requirements, lack of user involvement, lack of resources, unrealistic expectations, lack of executive support, changing requirements and specifications, lack of planning, lack of IT management and technical illiteracy.
The top 5 factors found in successful projects are user involvement, executive management support, clear statement of requirements, proper planning and realistic expectations. The report concludes that these were the elements that were most often pointed to as major contributors to project success. If so a new problem arise – whether these elements alone can guarantee a suc-cess. And the answer is negative. But if these are done well, a project, according to the Standish Group, will have a much higher probability of success.
There are many things that lead to project success and many that lead to failure. In many studies, the commitment and involvement of senior management has been identified as a major success factor (see Table 2). Executive support is now the no. 1 factor in project failure. Lack of executive support can and does jeopardize projects. Positive executive support positively influ-ences project outcome.
Table 2. Factors affecting the success of strategic IT investments
Favorable factors Unfavorable factors
Involvement of the top management No close relations between IT and business IT has been already engaged in strategic
planning and development
No priorities in IT IT employees understand business process in
a company
Uncompromising attitude and lack of under-standing
There are partnership relations between IT department and business departments
No respect for business
IT priorities are properly recognized The top management is not involved Leadership in IT management Lack of leadership in IT management
Source: J.N. Luftman: Assessing Business IT Alignment Maturity, [in] Kasprzak T.: Studia infor-matyki gospodarczej. Biznes i technologie informacyjne – perspektywa integracji strategicznej. Katedra Informatyki Gospodarczej i Analiz Ekonomicznych, Wydział Nauk Ekonomicznych Uni-wersytet Warszawski, Warszawa 2003, p.122.
Having in mind a perception that the majority of IT investment were unsuccessful, there is a need for a new approach to how such projects are undertaken. And the important problem con-sists in the relationship between the business and IT strategies.
3. The development of IT within organization
It can be concluded that, from the 1960s to the present days, Information Systems (IS) and In-formation Technology (IT) [10] and its development in the enterprises have passed through a ma-jor transition, which linked three eras. These eras can be summarized as [11]:
1. the data processing era (from the 1960s onwards);
2. the management information systems era (from the 1970s onwards); 3. the strategic information system era (from the 1980’s onwards). The prime objective of using IS/IT in the eras has been different:
• to improve the operational efficiency by automating information-based processes in data processing era;
• to increase the management effectiveness by satisfying their information requirements for decision making in the management information systems;
• to improve competitiveness by changing the nature or conduct of business (i.e. IS/IT in-vestments can be a source of competitive advantage) in the strategic information systems. What’s important, the contribution and performance of IS/IT in the business has become more significant, hence the level of management involvement required has been elevated to executive level. Nowadays planning of the IS/IT investments is now clearly a process that depends on users and senior management involvement for success [11]. It has become difficult to separate the as-pects of IS/IT strategy from business strategy [9]. Hence, it is important to use the tools and tech-niques of business strategic analysis and planning to ensure that approaches to IS/IT strategy for-mulation and planning are knitted into the pattern of business strategic management.
What can be concluded is that the IS/IT should be treated like any other part of the business, which - like marketing, production or purchasing, for example - must be carried out efficiently and effectively for the business to survive, but which can also provide competitive/strategic leverage for the organization if it is managed properly. This implies an approach to developing strategies for information systems and technology that are derived from and integrated with other compo-nents of the strategy of the business.
It should be stressed that before a company can consider the development of a particular in-formation system - a part of which is an IT system –it’s first necessary to understand the relevance of the investment to the three interrelated strategies that should have been defined by an organiza-tion: the business, the IS (Information Systems) and the IT (Information Technology) strategies [12]. Only when these strategies have been agreed, it can be determined how individual invest-ments contribute to what the organization is trying to achieve. The greatest benefit are likely to arise from the projects that enable the organizations to achieve its chosen strategy. Figure 1 pre-sents the postulated relationships between the business, IS and IT strategies [6].
It’s important to stress that the IT strategy should be derived from the IS strategy (which should be considered as one ingredient that supports or enables the delivery of the identified busi-ness objectives), otherwise the busibusi-ness strategy tends to become dominant by technology issues, rather than indicating how IT applications can meet the defined business needs [6].
Fig. 1. The relationships between business, IS and IT strategies
Source: Ward, J.M., Peppard J.: Strategic Planning for Information Systems. John Wiley & Sons, Chichester 2002, p.40
The overall implications are that, as the enterprise becomes more dependent on IS/IT - essen-tially to avoid being disadvantaged, the more centralized and structured the approach to planning and control should become. But, to facilitate the innovative uses of IS/IT to create future advan-tages, technology control needs to be close to the business user to enable appropriate connections between business need and technology solution to be made. Gaining advantage and avoiding dis-advantage implies a complex, balanced set of management approaches. Most organizations are facing this situation as both internal and external pressures on the enterprises will increase. Proba-bly it’s the best to say that every organization needs approaches to IS/IT strategy formulation and planning tailored to its individual circumstances, as determined by the industry and business situa-tion and the organizasitua-tion culture.
BUSINESS STRATEGY • Objectives and
di-rection • Change IT STRATEGY • Activity based • Supply oriented • Technology focused IS STRATEGY • Business strategy based • Demand oriented • Application focused Suport business Needs and priorities Needs and priorities Infrastructure and services External industry
factors and internal resources and
compe-tences
Where is the business going and why?
Potential for new business opportunities What business support is re-quired? How can it be deliv-ered?
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Olga Dbicka Karol Kreft
Uniwersytet Gdaski
Ul. Armii Krajowej 119/121, 81-824 Sopot email: olga.debicka@gmail.com
