Introduction

Why do managers need to understand and participate in the information systems (IS) decisions of their
organizations? After all, most corporations maintain entire departments dedicated to the management of
IS. These departments are staffed with highly skilled professionals devoted to the field of technology.
Shouldn’t managers rely on experts to analyze all 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. While in the past,
making better management decisions was the sole focus of information technology (IT), today every
business has to go further and develop a digital business strategy. For example, it is no longer an issue for
organizations to decide whether they want to collect and manage large amounts of information, develop
websites, and engage social networks, but how to initiate, manage, and nurture all those channels. A suc-
cessful manager continuously re-evaluates a company’s vision in light of new opportunities and threats
from IT. A successful process begins with the realization that customers, colleagues, and trading partners
have ubiquitous access to sophisticated technologies, and all perhaps unreasonably expect nearly instant
responses in a business world that is more dynamic than ever before.
Most importantly, change can come from unforeseen directions. New information-based products have
emerged that have endangered businesses that were managed as if they were going to last forever. One
need to only examine how Uber and Lyft suddenly led to sharp reductions in taxicab use, how Amazon
has shrunk the number of brick-and-mortar stores such as Sears and K-Mart, how music streaming has all
but eliminated music stores, and how on-line video streaming has challenged cable television companies.1
Hence, understanding how to manage and use IS is no longer a luxury; it is a necessity to understand how
to take advantage of IT, rather than to become a victim of IT.
The disruption from Uber and Lyft are most remarkable. In 2018, Forbes reported that between the first
quarter of 2014 and the same time period in 2018, the share enjoyed by taxicabs shrank from 37% to 6%
of the business traveler ground transportation market. Rental cars also suffered, declining from 55% to
23.5%. However, ride-hailing rose from 8% to 70.5% of the market between 2014 and 2018.2
The business traveler ground transportation market is an excellent illustration of market disruption
afforded by creative uses of IT, especially when providing connections between a firm’s IT and customers’
smartphones. The vast majority of U.S. adults today own a smart phone and access online apps. According
to the Pew Research Center, in 2018, 95% of U.S. adults had a cell phone of some kind, and, from 2011 to
2018, the percent of U.S. adults who own a smartphone rose from 31% to 77%,3 which now has surpassed
the percent of Americans who use computers. Computer usage diminished from a high of 78% in 2012
to 73% in 2018.4 Pew also noted that 90% of American adults use the Internet, and about 75% have high
speed (broadband) access at home.5
The use of these types of devices implies that individuals now manage a “personal IS” and make deci-
sions about usage, data, and applications. Many even manage their own wireless network at home. Doesn’t

1
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 October 29, 2015).
2
M. Goldstein, “Dislocation and Its Discontents: Ride-Sharing’s Impact on the Taxi Industry,” Forbes.com, June 8, 2018, https://www.forbes.
com/sites/michaelgoldstein/2018/06/08/uber-lyft-taxi-drivers/#454cd99259f0 (accessed January 10, 2019).
3
Pew Research Center, “Mobile Fact Sheet,” February 5, 2018, http://www.pewinternet.org/fact-sheet/mobile/ (accessed January 10, 2019).
4
Pew Research Center, “Internet, Social Media Use and Device Ownership in U.S. Have Plateaued After Years of Growth,” September 28,
2018, http://www.pewresearch.org/fact-tank/2018/09/28/internet-social-media-use-and-device-ownership-in-u-s-have-plateaued-after-years-
of-growth/ (accessed January 10, 2019).
5
Pew Research Center, “Internet Use and Cell Phone Demographics,” http://www.pewinternet.org/data-trend/internet-use/internet-use-over-
time (accessed June 22, 2019).
1
2 INTRODUCTION

that give them insight into managing IS in corporations? Students often think they are experts in corporate
IS because of their personal experience with technology. Although there is a glimmer of truth in that per-
spective, 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 IS provide some experience that is useful in the corporate set-
ting. But in a corporate setting, IS must be ready for use by an enterprise and beyond. These systems must
be scalable for a large number of employees and customers, often simultaneously; they must be delivered
in an appropriate manner for the enterprise; and they must be managed with corporate guidelines and
appropriate governmental regulations in mind. Issues such as security, privacy, risk, support, and archi-
tecture take on new meaning within an enterprise, and someone has to manage them. Enterprise-level
management and use of IS require a unique perspective and a different skill set.
Consider the now-historic rise of the so-called FANG group of companies (Facebook, Amazon.com,
Netflix, and Google). All began as small startups only two decades ago, and now each occupies a posi-
tion in the Fortune 500 list of largest companies, while two have reached Fortune’s top 25 with ranks of
8 (Amazon) and 22 (Google/Alphabet).6 Amazon.com’s rise is meteoric. It began as an online bookseller
and expanded rapidly by leveraging its business model into other marketplaces, such as music, electronics,
health and beauty products, lawn and garden products, auctions, tools and hardware, groceries, and more.
It succeeded 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 compa-
nies ranging from suppliers (such as the U.S. Postal Service) to competitors (such as Target) to customers
(who can sell their used goods on its platform).
More recently, Amazon.com changed the basis of competition in another market, but this time it
was the web services business. Amazon.com web services offer clients the extensive technology plat-
form used for Amazon.com but in an on-demand fashion for developing and running the client’s own
applications.
Likewise, Google (now listed as its holding company “Alphabet”) built a business that has revolu-
tionized the way information is found. Google began in 1999 as a basic search company but its manag-
ers 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 incredibly fast response time and in a host of languages. Further, Google’s
keyword-targeted advertising program and Google Analytics revolutionized the way companies adver-
tise and track their progress in reaching customers. Then Google expanded, offering a suite of web-
based applications, such as calendaring, office tools, e-mail, collaboration, shopping, and maps. Google
Drive is one of the most popular file-sharing tools and Gmail one of the most popular e-mail services.
As of January 2019, in 19 cities it offered its customers very inexpensive fiber connections.7 In so doing,
Google has further expanded into infrastructure and on-demand services and shows no signs of slowing
its progress.8
These and other online businesses are able to succeed where traditional companies have not, in part
because their management understood the power of information, IS, and the web. These exemplary online
businesses aren’t succeeding 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 infor-
mation 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
knowledgeable participant in IS decisions because any IS decision in which the manager doesn’t partici-
pate 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 managerial 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

6
List, Fortune.com, 2019, http://fortune.com/fortune500/list (accessed January 10, 2019).
7
Google.com, “Our Cities,” January 10, 2019, https://fiber.google.com/ourcities/ (accessed January 10, 2019).
8
For more information on the latest services by these two companies, see http://aws.amazon.com/ec2 and http://www.google.com/enterprise/
cloud/.
 The Case for Participating in Decisions about Information Systems 3

models for understanding the nature of business and IS. These models provide a framework for the discus-
sions 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 effective decisions about any of them. Furthermore, as firms find digital business
models at the core of just about every business today, failing to align IT decisions between business and
technology leaders can cause a firm to fail to meet corporate objectives. As is covered in Chapter 9 on
Governance, many decisions historically made by the IS group are increasingly being made by individu-
als outside that group. Envisioning new or enhanced digital business models requires an understanding of
technologies and their capabilities and impacts on firms.
Therefore, understanding basic fundamentals about using and managing information is worth the
investment of time. The reasons for this investment are summarized in Figure I-1 and are discussed next.

A Business View of Critical Resources

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
$3.8 trillion in 2018. It is projected to continue to increase another hundred million in 2019.9 Gartner
sorts IT spending into five categories including devices (e.g., PCs, tablets, and smartphones), data
center systems (e.g., network equipment, servers, and storage equipment), enterprise software and apps
(e.g., companywide software applications), IT services (e.g., support and consulting services), and
communications services (e.g., the expenses paid to vendors for voice and data services).10

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 or mobile 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 I-1 Reasons why business managers should participate in IS decisions.

9
Gartner, “Gartner Says Global IT Spending to Grow 3.2 Percent in 2019,” October 17, 2018, https://www.gartner.com/en/newsroom/press-
releases/2018-10-17-gartner-says-global-it-spending-to-grow-3-2-percent-in-2019 (accessed June 22, 2019).
10
Ibid.
4 INTRODUCTION

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 effec-
tive 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. Platform-based systems are generating widespread
contributions, as well as use, across organizational boundaries. Technology is facilitating 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 consequences, risk mitigation, and why adopting new tech-
nology 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

According to Jeremy King, Chief Technology Officer of @Walmart Labs, to achieve success, companies
must realize that they are becoming technology companies. As King wrote in a blog, that in the past, there
was a way to distinguish between companies, because some develop the technologies for enterprises, and
some depended on those technologies. However, King went on to state:

“. . . that distinction is now diminishing for this simple reason: every global company is becoming a tech com-
pany. . . . we’re seeing technology as a critical component for business success.”11

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 online
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 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
adoption of these new technologies has increased due in part to the changing demographics of the work-
force and the integration of “digital natives,” individuals whose entire lives have been lived in an era with

11
Jeremy King, “Why Every Company Is a Tech Company,” November 21, 2013, http://www.walmartlabs.com/2013/11/21/why-every-
company-is-a-tech-company-by-jeremy-king-cto-of-walmartlabs (accessed August 18, 2015).
 The Case for Participating in Decisions about Information Systems 5

Internet availability through the web. Therefore, digital natives are completely fluent in the use of personal
technologies and the web, whereas “digital immigrants,” or people born before the 1990s, weren’t always
around computers when they were young. Even today, innovative 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 opportunities so that others can under-
stand 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 crucial 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 managers are often called on to demonstrate a clear understanding of how their own
technology programs and products 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 such as Facebook, microblogs such as Twitter, and other web appli-
cations such as 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 interacting 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 and the sensors associated with the Internet of Things (IoT) have created rich streams of
real-time data that give 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 sug-
gestions that are eerily close to what eventually 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 secu-
rity 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 busi-
ness. Managers must be involved in decisions about risk and security to ensure that business operations are
in sync with the resulting security measures.
6 INTRODUCTION

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, from the purchase of large-scale software to the
adoption of a new digital business model. Choosing the wrong digital business model can cause a com-
pany to miss business opportunities and any revenues those opportunities would generate. 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 technol-
ogy can lead to overspending and excess capacity or underspending and restricted opportunity. Inefficient
business processes sustained by ill-fitting IS also increase expenses. Lags in implementation or poor pro-
cess adaptation reduces profits and therefore growth. All of these situations demonstrate that 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: (1) IS that fail to support business goals, (2) IS that fail to support organi-
zational 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 driv-
ing questions to consider are the potential 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?

Information Systems Must Support Business Goals and

Organizational Systems
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
align IS with business goals and organizational systems. When IS lack the capacity needed to collect, store,
and transfer critical information for the business, decisions can be impacted and options limited. Custom-
ers 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 expe-
rienced this problem when a Superbowl ad promoting an online fashion show generated so many inquir-
ies to its website that the website crashed. Spending large amounts of money on the advertisement was
wasted when potential customers could not access the site. Recently, after a 31% year over year increase in
Black Friday sales in 2018, website failures struck several retailers such as Walmart, J. Crew, and Lowe’s.
J. Crew alone was estimated to have lost over three-quarters of a million dollars in sales due to the outage.12
Organizational systems represent the fundamental elements of a business—its people, work processes,
tasks, structure, and control systems—and the plan that enables them to work efficiently to achieve busi-
ness goals. It might seem odd to think that a manager might add functionality to a corporate website
without providing the training employees need to use the tool effectively. Yet, this mistake—and many
more costly ones—occur in businesses every day. Managers make major IS decisions without informing
all the staff of resulting changes in their daily work. Deploying technology, from an individual’s desktop to
enterprise-wide systems, requires careful planning about how it actually will be used in the organization—
who will use it, how they will use it, and how to make sure the applications chosen will actually accom-
plish what is intended.
The general manager, who, after all, is charged with ensuring that company resources are used effec-
tively, 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 with traveling employees needs an
information system strategy compatible with its organizational strategy. Purchasing smartphones and/or
connected tablets would only be a superficial solution. Those employees need a careful analysis of infor-
mation needs while on the road. Factors that make it difficult to close a sale should be anticipated and apps

12
Kara Driscoll, “Retail Websites Crash on Black Friday: What to Expect Today,” Dayton Daily News (November 26, 2018), https://www.
daytondailynews.com/business/retail-websites-crash-black-friday-what-expect-today/GE04DSFuxL1hUFdQf1YoJN/ (accessed January 26,
2019).
 Skills Needed to Participate Effectively in Information Technology Decisions 7

on their smartphones or connected tablets need to be able to respond to those information needs in real
time. Sometimes it would involve pulling up product comparisons that highlight their strengths. In other
situations, it requires displaying seasonal fluctuations in local, regional, national, or international sales.
Analyses of impacts of product improvements on customer satisfaction might be just what is needed. If
the organization tries to adopt traditional information retrieval systems that mirror those used in the past,
the technologies are doomed to fail.

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: vision-
ary tasks that provide leadership and direction for the group; informational/interpersonal tasks that provide
information and knowledge the group needs to be successful; and structural tasks 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.
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 I-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.
Managers need curiosity, creativity, and the confidence to ask questions in order to learn and understand.
A solid framework 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 manage and use
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

Managerial Role Skills

Visionary Creativity
Curiosity
Confidence
Focus on business solutions
Flexibility

Informational and interpersonal Communication

Listening
Information gathering
Interpersonal skills

Structural Project management

Analytical
Organizational
Planning
Leading
Controlling

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

8 INTRODUCTION

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 managing and using information. The
first five chapters offer basic frameworks to make this understanding easier. Chapter 1 introduces the Infor-
mation Systems Strategy Triangle framework to discuss alignment of IS and the business. This chapter also
provides a brief overview 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. 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 the IS organization, funding models, portfolios, and monitoring options. Chapter 9 describes the
governance of IS resources. Chapter 10 explores sourcing and how companies provision IS resources.
Chapter 11 focuses on project and change management. Chapter 12 concerns business intelligence, knowl-
edge 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 privacy and the
ethical use of information.

Basic Assumptions
Every book is based on certain assumptions, and understanding those assumptions makes a difference in
interpreting the text. The first assumption made by this text is that managers must be knowledgeable partici-
pants 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 avail-
able 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 tech-
nological evolutions and revolutions, such as new uses of the web, big data, business analytics, new social
tools, platform-based systems 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 third, perhaps controversial, assumption is that the roles of a general manager and of an IS man-
ager 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 sec-
ond 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: interpersonal, informational, and decisional (see Figure I-3). This model is useful because
 Basic Assumptions 9

Type of roles Manager’s roles IS examples

Interpersonal Figurehead CIO greets touring dignitaries.

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

Liaison 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.

Informational Monitor Division manager compares progress on IS project for the division with milestones
developed during the project’s initiation and feasibility phase.

Disseminator CIO conveys organization’s business strategy to IS department and demonstrates how
IS strategy supports the business strategy.

Spokesperson IS manager represents IS department at organization’s recruiting fair.

Decisional Entrepreneur IS division manager suggests an application of a new technology that improves the
division’s operational efficiency.

Disturbance handler IS division manager, as project team leader, helps resolve design disagreements
between division personnel who will be using the system and systems analysts who are
designing it.

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

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

FIGURE I-3 Managers’ roles.

Source: Adapted from H. Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973).

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, described below, is often seen as a tactical approach to management, whereas
some regard 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
experiences with different firms. This understanding forms a model that provides the basis for compre-
hending actions, interpreting decisions, and communicating ideas. Managers use their internal model
to make sense of otherwise 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 activi-
ties 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 might involve steps taken by other departments that generate obligations, which
10 INTRODUCTION

Executive Management

Information Flows

Accounting

Operations

Marketing

Support
Sales
FIGURE I-4 Hierarchical view of the rm.

Executive Management

Accounts Payable Process

Accounting

Operations

Marketing

Support
Sales
Product Development Process

Order Fulfillment Process

Information Flows

FIGURE I-5 Process view of the rm: cross-functional processes.

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 mar-
keting 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 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 use-
ful when similar 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, and the
plethora of enterprise-wide systems and platforms further emphasize that every portion of a business needs
access to that information.

Assumptions about Information Systems

Consider the components of an information system from the manager’s viewpoint rather than from the
technologist’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.
 Basic Assumptions 11

Data Information Knowledge

Definition Simple observations of the state of Data endowed with relevance Information from the human mind
the world and purpose (includes reflection, synthesis, context)

Characteristics • Easily structured • Requires unit of analysis • Hard to structure

• Easily captured on machines • Data that have been • Difficult to capture on machines
• Often quantified processed • Often tacit
• Easily transferred • Human mediation • Hard to transfer
necessary
• Mere facts

Example Daily inventory report of all Daily inventory report of Inventory manager’s knowledge of which
inventory items sent to the CEO items that are below economic items need to be reordered in light of
of a large manufacturing company order quantity levels sent to daily inventory report, anticipated labor
inventory manager strikes, and a flood in Brazil that affects
the supply of a major component

FIGURE I-6 Comparison of data, information, and knowledge.

Source: Adapted from Thomas Davenport, Information Ecology (New York: Oxford University Press, 1997).

Information Hierarchy
The terms data, information, and knowledge are often used interchangeably, but have significant and dis-
crete meanings 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 organiza-
tion to agree on common definitions 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.
Information is data endowed with relevance and purpose.13 People turn data into information by organ-
izing data into some unit of analysis (e.g., dollars, dates, or customers). For example, a mash-up of location
data and housing prices (from separate sources) adds something beyond what the data provide individu-
ally, and that makes it information.
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 hierar-
chical levels. For example, when considering functional differences related to a sales transaction, a mar-
keting department manager may be interested in the demographic characteristics of buyers, such as their
age, gender, and home address. A manager 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 pay-
ment and date of payment.
Similarly, information needs may vary across hierarchical levels. These needs are summarized in
Figure I-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 activities of senior management are much broader in scope. Senior
management performs long-term planning and needs 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,

13
Peter F. Drucker, “The Coming of the New Organization,” Harvard Business Review (January–February 1988), 45–53.
12 INTRODUCTION

Supervisory and lower-level

Top management Middle management management
Time horizon Long: years Medium: weeks, months, years Short: day to day

Level of detail Highly aggregated Summarized Very detailed

Less accurate Integrated Very accurate
More predictive Often financial Often nonfinancial

Source Primarily external Primarily internal with limited external Internal

Decision Extremely judgmental Relatively judgmental Heavily reliant on rules

Uses creativity and analytical
skills

FIGURE I-7 Information characteristics across hierarchical levels.

Source: Adapted from Anthony Gorry and Michael S. Scott Morton, “A Framework for Management Information Systems,” Sloan Management
Review 13, no. 1 (1971), 55–70.

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.14 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 that there is a fourth level in the information hierarchy: wisdom. Wisdom is knowl-
edge fused with intuition and judgment that facilitates making decisions. Wisdom is that level of the infor-
mation 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 infor-
mation business.15 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, a conventional automobile con-
tains as much computing power as a personal computer, with specialized processors and sensors alerting
the driver of its health. Autonomous (self-driving) vehicles have extended that power to another order of
magnitude, merging location awareness (through GPS data) with visual input (using cameras).
Several current manufacturers see a future market for automobiles as a “subscription” or “sharing”
model rather than a “purchase” model. Made possible only by IT, such a model would eliminate the need
to search, negotiate, own, and maintain a vehicle.16 Perhaps in the future a user will be able to signal for
a car on a watch or smartphone to autonomously drive to her location, ride to the proper destination, and
then dismiss the car to return to its “home base.” The car can make its own appointment at the repair shop
when it senses that maintenance is needed, and then navigate to the facility by itself. Close coordination of
manufacturers, software developers, mobile platform developers, and many other partners will each take
an important role in the digital business model necessary to make this a reality.
As our world is reshaped by information-intensive industries, it becomes even more important for
business strategies 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

14
Thomas H. Davenport, Information Ecology (New York: Oxford University Press, 1997), 9–10.
15
Philip Evans and Thomas Wurster, Blown to Bits (Boston, MA: Harvard Business School Press, 2000).
16
Rhinehart, “Car Subscription Services Are the Future of Vehicle Ownership,” MutualMobile.com, February 26, 2018, https://mutualmobile.
com/resources/car-subscription-services-are-the-future-of-vehicle-ownership (accessed January 11, 2019).
 Economics of Information versus Economics of Things 13

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 others have no legal limit
in their ability to copy it. 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 eco-
nomics of information.
Evans and Wurster suggested 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 of the value of separating informa-
tion from things. Encyclopedia Britannica published authoritative, richly bound, and colorful physical
volumes every several years and used expert writers and well-trained door-to-door salespeople. In its
last year of print publication, the publisher charged $1,395 for a set of 32 volumes weighing 129 lbs.
in total.17 The printing and binding alone had cost $250, and sales commissions were $500 to $600.18
In 2012, the 244-year-old publisher announced that the print edition would be discontinued in favor of
only digital editions.19 Its revenue model is now based on subscriptions, with a 2019 price of $74.95 per
year.20 People who had purchased a physical set every three years at $1,395 would now only pay $225
for access to the content. Even after subtracting printing and commissions, the net revenue per sale to the
publisher is now a fraction of what it had been in 2012, especially considering the increase in the cost of
living since the 1990s.
Two threats weakened the publisher. The first threat was posed in 1989 by Comptons, an entire
26-volume, 32,000 article multimedia encyclopedia on a single CD-ROM 21 that was eventually given away
to promote the sale of computers and required upgrades and peripheral devices. One of the authors of this
textbook remembers buying a computer in the early 1990s that included Groliers and Encarta, not one but
two different encyclopedias, at no cost. These threats to Britannica were merely a bellwether of what was
to come, as only 15% of families owned a computer in 1990.22

Things Information
Wear out Doesn’t wear out but can become obsolete or untrue

Are replicated at the expense of the manufacturer Is replicated at almost zero cost without limit

Exist in a tangible location Does not physically exist

When sold, possession changes hands When sold, seller may still possess and sell again

Price based on production costs Price based on value to consumer

Are based on a physical infrastructure Is based on a digital infrastructure

Are fixed units, each needing physical handling Can be repackaged/customized/generated on demand

Usually cannot be combined to operate with other Requires only translation software to be combined with, or augmented
physical units by, other data

FIGURE I-8 Comparison of the economics of things with the economics of information.

17
Julie Bosman, “After 244 Years, Encyclopaedia Britannica Stops the Presses,” New York Times (March 13, 2012), https://mediadecoder.
blogs.nytimes.com/2012/03/13/after-244-years-encyclopaedia-britannica-stops-the-presses/ (accessed January 26, 2019).
18
Ibid., Evans and Wurster, Blown to Bits.
19
Ibid., Bosman, “After 244 Years, Encyclopaedia Britannica Stops the Presses.”
20
According to the Britannica.com signup page at https://safe1.britannica.com/registrations/signup.do?partnerCode=FAQ_012610 (accessed
January 26, 2019).
21
David English, “Compton’s MultiMedia Encyclopedia (Evaluation),” Compute! no. 136 (December 1991), 198, https://www.atarimagazines.
com/compute/issue136/98_Comptons_MultiMedia.php (accessed January 26, 2019).
22
Bureau of Labor Statistics, “Computer Ownership Up Sharply in the 1990s,” US Department of Labor, April 5, 1999, https://www.bls.gov/
opub/ted/1999/apr/wk1/art01.htm (accessed January 26, 2019).
14 INTRODUCTION

The second and more potent blow to Britannica was Wikipedia, which is freely available to all and
updated on a nearly real-time basis continuously by thousands of volunteers. Not even Encarta could even
survive the genesis of Wikipedia in 2001 and ceased production in 2009.23 Currently, Wikipedia reports
that it holds over 40 million articles in 301 different languages,24 receives almost 2 edits per second glob-
ally, and boasts 559 new pages added each day.25 A paid publication that is updated every three years is no
match for a free resource that is updated constantly and almost instantly.
A strong two-century-old tradition of bundling the economics of things with the economics of informa-
tion made it difficult for Encyclopedia Britannica to envision the threats looming against it. Only when it
was threatened with its very survival by a surge of networked computers accessing Wikipedia did Ency-
clopedia 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
Even 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 (IoT) 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 in 1999,26 it was not widely discussed until the last few years. The earliest exam-
ple of its functions was reported before the Internet even existed—in a Coke machine at Carnegie Mellon
University in the mid-1970s. Staff members 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.27
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.28 Sensors in elevators sent alerts over a network to a service
center’s computer when parts need replacing, and service technicians arrived without the building owner
knowing about the potential problem. Extending IoT even further, today’s elevator systems alert handheld
devices of nearby repair technicians who then visit the elevator to make the repair.29
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 billions of “things”—ranging from pills to
airplanes.30 Many people are familiar with smart bulbs, smart thermostats, and smart cars, which can be
controlled by computers, smartphones, or voice-driven assistants such as those from Google or Amazon’s
Echo. However, consumers are not as familiar with the massive amounts of data generated by these devices
and accessible by their manufacturers. Cisco estimates that in 2021, the data transmitted by “things” will
account for 5% of global Internet traffic.31
The potential impact of IoT, and the amount of data generated in the near future, is only limited by the
number of objects connected and apps available to monitor and control them. Pundits expect an exponen-
tial increase in IoT functionality, usage, and accompanying data. 32

23
Noam Cohen, “Microsoft Encarta Dies After Long Battle with Wikipedia,” New York Times BITS, March 30, 2009, https://bits.blogs.
nytimes.com/2009/03/30/microsoft-encarta-dies-after-long-battle-with-wikipedia/ (accessed January 26, 2019).
24
Wikipedia, https://en.wikipedia.org/wiki/Wikipedia (accessed January 26, 2019).
25
Wikipedia Statistics, http://en.wikipedia.org/wiki/Wikipedia:Statistics (accessed January 26, 2019).
26
K. Ashton, “That ‘Internet of Things’ Thing,” RFID Journal, June 22, 2009, http://www.rfidjournal.com/articles/view?4986 (accessed May
26, 2015).
27
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).
28
D. Freedman, “The Myth of Strategic IS,” CIO Magazine (July 1991), 42–48.
29
Internet of Things, Whatis.com, http://whatis.techtarget.com/definition/Internet-of-Things (accessed May 26, 2015).
30
Steve Ranger, “What Is the IoT? Everything You Need to Know about the Internet of Things Right Now: Updated,” ZDNet, August 21,
2018, https://www.zdnet.com/article/what-is-the-internet-of-things-everything-you-need-to-know-about-the-iot-right-now/ (accessed
January 26, 2019).
31
Ibid.
32
JaredNewman, “Right Now, the Internet of Things Is Like the Internet of the 1990s,” Fast Company, March 27, 2015, http://www.
fastcompany.com/3044375/sector-forecasting/the-future-of-the-internet-of-things-is-like-the-internet-of-the-1990s (accessed May 26, 2015).
 Economics of Information versus Economics of Things 15

Consumerization and Social Business

The explosion of consumer-based technologies, coupled with applications such as Facebook, Renren, Sina
Weibo, WeChat, Twitter, LinkedIn, YouTube, Foursquare, Skype, Pinterest, and more, have brought into
focus the concept of a social business. Some call this trend Information Technology (IT) consumerization.
IT consumerization means that technologies such as social tools, smartphones, and web applications
targeted at individual, personal users are creating pressures for companies in new and unexpected ways.
At the same time, technologies initially intended for the corporation, such as 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 applica-
tions, activities, and processes. We sometimes say that 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, collabo-
rating, doing work, and measuring results. In this book, we are particular about the terminology we use.
Social IT is the term we use for all technologies in this space. We define social IT as the technologies used
for people to collaborate, network, 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 IT-enabled
networks that link individuals together in ways that enable them to find experts, get to know colleagues, and
see who has relevant experience for projects across traditional organizational lines. 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 IS.

System Hierarchy
IS are composed of three main elements: technology, people, and process (see Figure I-9 and further discus-
sion in Chapter 12). When most people use the term information system, they actually refer only to the tech-
nology 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. 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, IT focuses only on the technical devices and tools used in the system. We define

Management

Information Systems

People Technology Process

FIGURE I-9 System hierarchy.

16 INTRODUCTION

information technology as all forms of technology used to create, store, exchange, and use information.
Many people use the terms IS and IT interchangeably. In recent years, “IT” has become more fashionable,
but terminology in IS can change quickly when new important technologies are introduced.

SUMMARY

Aligning IS and business decisions is no longer an option; it’s an imperative for business. Every business
operates 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 IS 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) depart-
ment 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 con-
cerning IS. It outlines 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 and society 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 and the IT organization governed? (Chapter 9)
• What source should provide IS services/products and how and where should they be provided? (Chapter 10)
• 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, 15 Information Technology (IT) social business, 15

data, 11 consumerization, 15 social IT, 15
digital immigrants, 5 infrastructure, 15 social media, 5
digital natives, 4 Internet of things, 14 social network, 15
information, 11 IS, 15 wisdom, 12
information technology, 16 knowledge, 11
 1
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 (IS) projects aimed at streamlining operations, offering new services, and
meeting government obligations. For example, in 2014, 13% of all the medical appointments 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 organization 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. As one of the first health-care organi-
zations to experiment with chat rooms, secure messaging, and private e-mail correspondence between
patients, physicians, and care providers, Kaiser Permanente has been a regular innovator in the use of
technologies. The new system connects each member to all caregivers and services available at Kaiser
Permanente. Further, it enables patients to participate in the health care they receive at a new level and
access information directly from the system.
The organizational design supports 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 is truly proactive and focused on promoting health. Under the
“fix-me system,” health care was expensive and often sought too late to fix the problem. Instead, the Kaiser
Permanente strategy now focuses on promoting health and enabling identification of problems before they
become serious issues. For example, those in need of more exercise may receive a prescription to take a

1
Clint Boulton, “Kaiser Permanente Names Richard Dick Daniels CIO,” Wall Street Journal, February 9, 2015, 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/; Geoff Colvin,
“A Health Care Model That’s Working,” Fortune, July 24, 2014, http://fortune.com/2014/07/24/a-health-care-model-thats-working/; and 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.

17
18 THE INFORMATION SYSTEMS STRATEGY TRIANGLE

walk and an e-mail reminder from health-care providers to reinforce the new behavior. Staff incentive
systems are aligned with this behavior, too. Physicians are all paid a flat salary and end-of-year bonuses if
their patients achieve better health. All caregivers are rewarded for guiding people into making behavioral
choices that are likely to keep them well.
Kaiser Permanente has reported higher quality of care and fewer malpractice cases as a result of
HealthConnect.3 Kaiser reported that HealthConnect is the largest civilian health information system in
the United States. The clinical information system is highly integrated, including clinical information,
appointments, services, registration, and billing. Before HealthConnect, patients seldom were able to find
chart information by phone or in the emergency room. Even by visiting, only 40–70% could find that
information. But now 100% is available through all of those mechanisms. New features include integrated
video visits, express check-in, web-accessible lab results, electronic notifications of room and prescription
availability, a mobile app, tablet entry of outpatient information into a mobile-enabled “dashboard,” and
other features, which assist both clinicians and patients. In total, 61% of transactions on the website are
accomplished via mobile devices. Perhaps most importantly, users of the portal are 2.6 times more likely
to remain loyal to Kaiser Permanente than nonusers.4
In 2014, Kaiser Permanente’s cloud-based Generation 2 Platform was launched to support the develop-
ment of clinical and operational services. Within two years, more than 1,000 systems had been delivered
with the help of the platform—all within a day of their request.5
Between 2014 and the beginning of 2019, Kaiser Permanente had grown from 9.5 million to 12.2 million
health plan members,6 and total operating revenue had grown from $56.4 billion to $79.7 billion.7 This
growth provides some confidence that the new system has been successful and meets the needs of patients,
clinicians, and management. Given the material in this chapter, the reader is likely to assume that we will
claim that the success at Kaiser Permanente was achieved in part because of the alignment between its
business strategy, its IS strategy, and its organization design. Kaiser actually did that for us, by stating that
they credit their success to the clarity of its mission statement, alignment of the organization’s structure
and incentives, and the integrated information technology.8 Physicians were part of the decision-making
processes. Managers were involved in the design and implementation of the IS. The decision to move from
a “fix-me system” to a “proactive health system” was not made in isolation from the organization or the IS.
The 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 regu-
lar in-person appointments but also incentive systems and patient service processes had to be updated. IS
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 Informa-
tion 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
strategy. The decisions made regarding the structure, hiring practices, vendor policies, and other com-
ponents of 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

3
Karin Cooke, “Kaiser Permanente: Integration, Innovation, and Transformation in Health Care,” https://www.himss.eu/sites/himsseu/files/
community/community_presentations/Kaiser_03-02-2018%20KP%20Cooke%20Overview.pdf (accessed February 6, 2019).
4
Ibid.
5
I. M. Sebastian, J. W. Ross, C. Beath, M. Mocker, K. G. Moloney, and N. O. Fonstad, “How Big Old Companies Navigate Digital
Transformation,” MIS Quarterly Executive 16, no. 3 (2017), 197–213.
6
Kaiser Permanente, “At a Glance,” https://ataglance.kaiserpermanente.org (accessed February 6, 2019).
7
Kaiser Permanente Health Plan and Hospitals Report 2018 Financial Results, https://share.kaiserpermanente.org/article/kaiser-foundation-
health-plan-and-hospitals-report-2018-financial-results (accessed March 5, 2019).
8
Cooke, “Kaiser Permanente: Integration, Innovation, and Transformation in Health Care.”
 The Information Systems Strategy Triangle 19

Business Strategy

Organizational Strategy Information Strategy

FIGURE 1.1 e Information Systems Strategy Triangle.

carefully balance these three strategies—they purposely design their organizational and 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 accom-
panied 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 strate-
gies. Avoiding harmful unintended consequences means remembering to consider business and organi-
zational 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 tactics 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.
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 strat-
egy (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
misalignment described earlier, Kaiser Permanente used online 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 goals, namely, syn-
chronization and convergence, toward which companies should strive. With synchronization, technology
not only enables current business strategy but also anticipates and shapes future business strategy. Conver-
gence 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.9
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 founda-
tion for IS discussions is built on some basic business strategy frameworks and organizational theories

9
F. Hogue, V. Sambamurthy, R. Zmud, T. Trainer, and C. Wilson, Winning the 3-Legged Race (Upper Saddle River, NJ: Prentice Hall, 2005).
20 THE INFORMATION SYSTEMS STRATEGY TRIANGLE

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 per-
spective 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 questions 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 strat-
egy 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 Facebook 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.”10
In a few words, the mission statement sums up what is unique about the firm. The information in
Figure 1.2 indicates 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 about the outdoors. 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 competi-
tive context for the business. Some markets, such as those faced by package delivery firms, laptop com-
puter 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

Company Mission Statement

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

Amazon To be Earth’s most customer-centric company, where customers can find and discover anything they might want to
buy online, and endeavors to offer its customers the lowest possible prices. . .(recognizing the importance of). . .
Consumers, Sellers, Content Creators, and Developers & Enterprises.b

L.L. Bean Being outside brings out the best in us. That’s why we design products that make it easier to take longer walks,
have deeper talks and never worry about the weather.c
a
http://www.inboundmarketingagents.com/inbound-marketing-agents-blog/bid/361859/Zappos-WOW-Philosophy-Tips-for-Fostering-Customer-
Delight (accessed February 12, 2019).
b
https://www.amazon.jobs/en/working/working-amazon Mission Statement on Amazon Jobs page (accessed February 12, 2019).
c
https://www.llbean.com/llb/shop/516917?lndrNbr=516884&nav=leftnav-cust (accessed February 12, 2019).

FIGURE 1.2 Mission statements of three retail businesses.

10
Shayndi Raice, “Is Facebook Ready for the Big Time?” The Wall Street Journal, January 14–15, 2012, B1.
 Brief Overview of Business Strategy Frameworks 21

automobiles, are similarly characterized by high competition, but product differentiation is better estab-
lished. 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 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 were 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 were sold. Thus, this strategy was consistent with Dell’s mission
of delivering the best customer experience in the business.
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,
is providing IT services. Consequently, Dell has adjusted its business strategy, and we can expect to see
changes in its organizational design and IS to reflect its altered direction.

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 component of the business
strategy is the business model, or the “blueprint of how a company does business.”11 The business model
can be used to create new products and services that add value to its customers and partners (value crea-
tion) and to describe how it will make money from that value it has created (value capture). Some might
argue that a business model is the outcome of strategy.12
One way to capture the value created by a business model is to employ a revenue model, which gener-
ates revenue for the company and captures some of the value created by the business model. Pricing strate-
gies such as those examples listed below represent different types of revenue models:
• Selling products or services: Customers make purchases.
• 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.

11
A. Osterwalder, Y. Pigneur, and C. L. Tucci, “Clarifying Business Models: Origins, Present, and Future of the Concept,” Communications
of the Association for Information Systems 16, no. 1 (2005), Article 1, page 2.
12
For a more detailed treatment of the concepts of business models, strategy, and tactics, see Ramon Casadesus-Masanell and Joan Ricart, “From
Strategy to Business Models and to Tactics,” Harvard Business School Working Paper 10-036, http://www.hbs.edu/faculty/Publication%20
Files/10-036.pdf (accessed August 21, 2015). For a list of 15 different business models, see http://www.digitalbusinessmodelguru.
com/2012/12/15-business-models-complete-list.html (accessed August 21, 2015).
22 THE INFORMATION SYSTEMS STRATEGY TRIANGLE

• 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.
A business model can create value without bringing in new revenue from customers. A common busi-
ness model can use cost displacement, in which case a firm funds a project or creates a new service by
cost savings, such as replacing personnel by adding new customer self-service options. A striking example
is that of Federal Express, which is said to deliver 14 million packages a day.13 A simple analysis reveals
the importance of FedEx’s PowerShip. If only 10% of those shipments are tracked, and only 10% of those
would have resulted in a 10-minute phone call to FedEx, there would need to be enough operators to
handle 1.4 million minutes of phone calls daily. If the business day covered only 8 hours (480 minutes),
then FedEx would need to employ almost 3,000 phone operators to cover the calls. If a phone operator
is paid a salary of $30,000 (including benefits), the total annual savings PowerShip provides to FedEx is
$90 million. This is clearly value creation derived from an information system.
Data-driven business models are equally powerful and relatively new. They are enabled by big data
and business analytics tools. In data-driven business models, customers benefit directly or indirectly from
how a company employs big data. There are three types of data-driven business models: (1) data users,
companies that leverage big data for internal purposes to improve their operations or develop new products
and services for its customers; (2) data suppliers, companies that sell big data that they have harvested,
and (3) data facilitators, companies that supply data users and suppliers with big data infrastructure solu-
tions (e.g., hardware and software tools) and services (e.g., consulting and outsourced analytics services).14
Firms need their processes to be aligned with their strategy. FedEx provides access to their PowerShip
platform to customers to provide better service, and as demonstrated above, with substantial efficiency.
Connecting that platform electronically to merchants, such as Amazon or Walmart, is an additional link
in the chain. Providing web-based tools to the merchants completes the circle and enables information to
flow without any manual intervention. The end customer provides digital data with minimal effort, and the
merchant transmits to the shipper the data from the order almost instantaneously. Adding any manual steps
at this volume would be silly.
Imagine what would happen to a large dot-com retailer such as Amazon or Walmart if all orders were
made on paper or telephone call to an operator. The IS process would not match the business strategy and
business goals of how to respond to outside business forces such as competitors or suppliers. Further, their
IS strategy must also be aligned with their processes. It would be equally silly to expect information to be
stored 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 environ-
ment strategies.15 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
framework 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

13
Andra Picincu, “How to Find a FedEx Tracking Number,” Bizfluent.com, January 22, 2019, https://bizfluent.com/how-8077705-fedex-
tracking-number.html (accessed March 6, 2019).
14
R. Schroeder, “Big Data Business Models: Challenges and Opportunities,” Cogent Social Sciences 2 (2016), 1166924.
15
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, 1st ed. (New York: The Free Press, 1985).
 Brief Overview of Business Strategy Frameworks 23

Strategic Advantage

Strategic Target
Uniqueness perceived by customer Low-cost position

Industrywide Differentiation Cost leadership

Particular segment only Focus

FIGURE 1.3 ree 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 long run is sustainable competitive advantage.”16 Porter identified three primary strategies for achiev-
ing competitive advantage: (1) cost leadership, (2) differentiation, and (3) focus. These advantages derive
from the company’s relative position 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 rela-
tive value. Typically, 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 marketplace. 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 to customers for the differentiator must seem fair relative to the price charged by
competitors. Typically, multiple firms in any given market employ this strategy.
The Progressive Casualty Insurance Company is able to differentiate itself from other automobile insur-
ance companies. In its earlier days, Progressive’s service was unique. Representatives responded to acci-
dent claims 24-7, arriving at the scene of the accident with laptop hardware and software that enabled
them to settle claims and even cut a check on the spot. Subsequently, Progressive was the first to offer a
usage-based insurance product, called Snapshot, that bases insurance rates on the miles driven by custom-
ers. More recently, Progressive provided a “Name Your Price” product that allows the customer to decide
how much to spend on insurance, which triggers software that scales up or down coverage to fit that price.
These innovations enabled a strategy that spurred Progressive’s growth and widened its profit margins.
Focus allows an organization to limit its scope to a narrower segment of the market and tailor its offer-
ings 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 competi-
tive advantage even if it does not achieve competitive advantage in the marketplace overall. Porter explains
how the focuser can achieve competitive 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
differences from the balance of the industry. Narrow focus in and of itself is not sufficient for above-average
performance.17

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

16
M. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, 2nd ed. (New York: The Free Press, 1998).
17
Porter, Competitive Advantage: Creating and Sustaining.
24 THE INFORMATION SYSTEMS STRATEGY TRIANGLE

receive a room assignment and keycard 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 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 informa-
tion 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 demonstrate 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.18 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 indus-
try; 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 care-
fully, making decisions that keep its per passenger costs among the lowest in the business, such as a limited
number of fuel-efficient airplane models in its fleet, gates at less congested airports, paperless cockpit and
many other operations, and snacks instead of meals on flights. JetBlue 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.19
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 custom-
ers satisfied with frills such as extra leg room, leather seats, prompt baggage delivery, DirectTV, and mov-
ies. It is also offering a premium service, Mint, on some transcontinental flights.20 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 framework was at the height of its popularity, newer models were 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. Porter’s framework focuses on creating competitive advantage in relatively
stable markets, whereas hypercompetition frameworks suggest that the speed and aggressiveness of the

18
Scott Berinato, “Room for Two,” CIO.com, May 15, 2002, http://www.cio.com/archive/051502/two_content.html.
19
Bob Hazel, Tom Stalnaker, Aaron Taylor, and Khalid Usman, “Airline Economic Analysis,” November 2014, http://www.oliverwyman.
com/content/dam/oliver-wyman/global/en/2014/nov/Airline_Economic_Analysis_Screen_OW_Nov_2014.pdf (accessed March 23, 2015).
20
Trefis Team, “A Closer Look at JetBlue’s Strategy,” Forbes, October 15, 2015, https://www.forbes.com/sites/greatspeculations/2015/10/15/
a-closer-look-at-jetblues-strategy/#6fb5b0b93795 (accessed March 1, 2019).
 Brief Overview of Business Strategy Frameworks 25

moves and countermoves in a highly competitive and turbulent market create an environment in which
advantages are rapidly created and eroded. In a hypercompetitive market, trying to sustain a specific com-
petitive 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, blue ocean strategy, and digital strategies.21
Dynamic capabilities are means of orchestrating a firm’s resources in the face of turbulent environ-
ments. 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.22
Since the 1990s, a competitive practice, called creative destruction, emerged. First predicted over
60 years ago by the economist Joseph Schumpeter, it was made popular more recently by Harvard Pro-
fessor Clay Christensen. Coincidentally (or maybe not), the accelerated competition has occurred con-
comitantly with sharp increases in the quality and quantity of information technology (IT) investment.
The changes in competitive dynamics are particularly striking in sectors that spend the most on IT.23 An
example of creative destruction is provided in Apple’s cannibalizing its own products. 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.24 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 marketplaces, 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 recom-
mend 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 mak-
ing money.”25 Dell also introduced into unchartered seas an unprecedented delivery process that allowed
buyers to receive customized new computers within four days of ordering them as compared to the tradi-
tional processes, which typically required 10 weeks.
A type of business strategy existing companies that face a dynamic environment might choose is a digi-
tal strategy. A digital strategy is defined as “a business strategy inspired by the capabilities of powerful,
readily accessible digital technologies (like social media, analytics, cloud, and Internet of Things), intent
on delivering unique, integrated business capabilities in ways that are responsive to constantly changing
market conditions”26 (p. 198). This can be enacted by building customer loyalty and trust with excellent
personalized and integrated customer experiences (customer engagement) or by integrating data, services,
and products to create digital solutions (digitized solutions strategy). A digital strategy perforce requires
a close alignment with the IS strategy. In order to execute a digital strategy, a company must have an
operational backbone (or the technology and business capability to deliver efficient and reliable core
operations) and a digital service platform (or the technology and business capability to pave the way

21
For more information, see Don Goeltz, “Hypercompetition,” vol. 1 of The Encyclopedia of Management Theory, ed. Eric Kessler
(Los Angeles, CA: Sage, 2013), 359–60.
22
D. J. Teece, G. Pisano, and A. Shuen, “Dynamic Capabilities and Strategic Management,” Strategic Management Journal 18 (1997), 509–33
and David Teece, “Dynamic Capabilities,” vol. 1 of The Encyclopedia of Management Theory, ed. Eric Kessler (Los Angeles, CA: Sage,
2013), 221–24.
23
Andrew McAfee and Erik Brynjolfsson, “Investing in the IT That Makes a Competitive Difference,” Harvard Business Review
(July–August 2008), 98–107.
24
Walter Isaacson, Steve Jobs (New York: Simon and Shuster, 2011).
25
W. Chan Kim and Renee Mauborgne, Blue Ocean Strategy (Cambridge, MA: Harvard Business School, 2005), 202.
26
I. M. Sebastian, J. W. Ross, C. Beath, M. Mocker, K. G. Moloney, and N. O. Fonstad, “How Big Old Companies Navigate Digital
Transformation,” MIS Quarterly Executive 16, no. 3, (2017), 197–213.
26 THE INFORMATION SYSTEMS STRATEGY TRIANGLE

Strategic Approach Key Idea Application to Information Systems

Porter’s generic Firms achieve competitive advantage through Understanding which strategy is chosen by a firm is
strategies cost leadership, differentiation, or focus. critical to choosing IS to complement the strategy.

Dynamic environment Speed, agility, and aggressive moves and The speed of change is too fast for manual response,
strategies countermoves by a firm create competitive making IS critical to achieving business goals.
advantage.

FIGURE 1.4 Summary of strategic approaches and IT applications.

for developing and implementing digital innovations). Kaiser Permanente’s HealthConnect provided the
operational backbone to integrate various systems to effectively and efficiently use clinical information. Its
Generation 2 Platform is a digital service platform that has made it possible to more easily produce digital
innovations across clinical and operational departments.

Why Are Strategic Advantage Models Essential to Planning

for Information Systems?
A general manager who relies solely on IS personnel to make all IS decisions not only gives up authority
over IS strategy but also hampers 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 capabilities or 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 mar-
ketplace?
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, coordinate, and control its work processes. How a manager designs the organization impacts every
aspect of operations from dealing with innovation to relationships with customers, suppliers, and employ-
ees. 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
Organization by Cash, Eccles, Nohria, and Nolan.27 This framework (Figure 1.5) suggests that the success-
ful execution 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

James I. Cash, Robert G. Eccles, Nitin Nohria, and Richard L. Nolan, Building the Information Age Organization (Homewood, IL: Richard
27

D. Irwin, 1994).
 Brief Overview of Information Systems Strategy 27

Execution

Organization Control
Decision
rights
Business
Data
processes

Formal
reporting People, Planning
relationships Organizational
Strategy Information, and effectiveness
Technology
Performance
Informal measurement
networks and
evaluation

Incentives
Values
and rewards

Culture

FIGURE 1.5 Managerial levers model.

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

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 organiza-
tions. These managerial levers are discussed in detail in Chapter 3.
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 control systems (management and measurement systems) are in place?
5. What are the culture, values, and beliefs of the organization?
6. What is the work that is performed in organizations, who performs it, and where and when is it performed?
7. What are the key business processes?
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 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 a plan an organization uses to provide information services. IS allow a company to imple-
ment its business strategy. JetBlue’s former Vice President for People explained it nicely: “We define what
the business needs and then go find the technology to support that.”28
Business strategy is a function of competition (What does the customer want and what does the com-
petition do?), positioning (In what way does the firm want to compete?), and capabilities (What can the
firm do?). IS help determine the company’s capabilities. An entire chapter is devoted to understanding key

28
Hogue et al., Winning the 3-Legged Race, 111.
28 THE INFORMATION SYSTEMS STRATEGY TRIANGLE

What Who Where

Hardware The physical devices of the system System users and managers Physical location of devices (cloud,
data center, etc.)

Software The programs, applications, and utilities System users and managers The hardware it resides on and
physical location of that hardware

Networking The way hardware is connected to other System users and managers; Where the nodes, the wires, and
hardware, to the Internet, and to other company that provides the other transport media are located
outside networks service

Data Bits of information stored in the system Owners of data; data Where the information resides
administrators

FIGURE 1.6 IS strategy matrix.

issues facing general managers 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 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.

A Closer Look: Building a Social Business Strategy

Some companies use social IT as quick 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 holistically. A social business strategy is a plan of how the firm will use social IT that
is aligned with its organizational strategy and IS strategy. Social business strategy includes a vision
of how the business would operate if it seamlessly and thoroughly incorporated social and collabora-
tive capabilities throughout the business model. It answers the same type of questions of what, who,
and where, as do many other business strategies.
Social businesses infuse social capabilities into their business processes. Most social business
opportunities 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 enter-
prise. 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 enter-
prise. 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 cre-
ated a social business strategy. Managers developed a branded community consisting of a number
of social IT tools such as Facebook, 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.
Source: Adapted from Keri Pearlson, “Killer Apps for a Social Business,” February 17, 2011, http://instantly
responsive.wordpress.com/2011/02/27/killer-apps-for-a-social-business (accessed March 19, 2015). For more
information on National Instruments, see Harvard Business School case study 813001, “National Instruments”
by Lynda Applegate, Keri Pearlson, and Natalie Kindred.
 Summary 29

The third component of IS infrastructure is the network, which is the physical means by which informa-
tion is exchanged among hardware components. Examples include fiber networks such as Google Fiber;
cable networks such as those provided by Time Warner, AT&T, and Comcast; Wi-Fi provided by many
local services; and 4G/5G/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 familiar with the use of platforms and
applications or apps. Platforms are technically any set of technologies upon which other technologies or
applications run. Often they are a combination of hardware and operating system software. Microsoft Win-
dows and Apple’s Macintosh with its latest operating system are two examples of platforms. Also common
are mobile platforms 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 introduced the App Store.
But more recently, because all platforms have applications that run on them, the term apps has taken on a
broader meaning; some use the term to describe almost any software that users encounter.

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 bal-
ance 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 de ned 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 sup-
ports 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 organi-
zational strategies. Moreover, IS strategy always has consequences—intended or not—on business and
organizational strategies.
• Definition: The plan the organization uses in providing IS 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
30 THE INFORMATION SYSTEMS STRATEGY TRIANGLE

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

alignment, 19 differentiation, 23 innovation, 28

apps, 29 digital strategy, 25 IS strategy, 27
blue ocean strategy, 25 dynamic capabilities, 25 managerial levers, 27
business model, 21 engagement, 28 mission, 20
business strategy, 20 focus, 23 organizational strategy, 26
collaboration, 28 hypercompetition, 24 red ocean strategy, 25
cost leadership, 23 Information Systems Strategy social business strategy, 28
creative destruction, 25 Triangle, 18 strategy, 20

DISCUSSION QUESTIONS

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.29
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”?30

Sean Michael, “NFL Teams Will Use Surface Pro 3s in 2015 and May Use HoloLens in the Future,” WinBeta, August 7, 2015, http://www.
29

winbeta.org/news/nfl-teams-will-use-surface-pro-3s-2015-and-may-use-hololens-future (accessed August 21, 2015).

30
Fast Company, “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).
 Discussion Questions 31

Case Study 1-1 Amazon in 2019

In the 4th quarter of 2018, Amazon reported a record $72.4 billion in revenues, which beat analysts’
expectations as well as its previous year’s 4th quarter earnings of $60.5 billion.i Net income was $3
billion, which was also a record for a quarter, beating the previous year’s 4th quarter by over 50%.
Since it was opened to the public for business selling books in 1995, Amazon has expanded into
other lines of business, blindsided retail stores of virtually all kinds, putting many stores and chains
out of business. Amazon has also expanded into other lines of business, such as web services, grocer-
ies, and media production and distribution.ii Amazon is currently working on adding several different
health-care services,iii creating “Amazon Go!” stores that require no check-out counters,iv and even
building its own product delivery network.v
It is easy to consider Amazon as a firm having instant success, but it began by targeting bookstores
as “Cadabra” in 1994 in a Seattle basement, with initial funding from the parents of then 30-year-old
CEO Jeffrey Bezos.vi Within a year, Bezos decided he had to rename the site due to some confusion
about the name, and also because of his desire to reflect a strategic vision of Amazon.com becoming
“Earth’s Biggest Bookstore,” just as Amazon is the Earth’s biggest river. By the end of 1996, Ama-
zon tallied almost $16 million in sales. After an IPO in 1997, Amazon shipped its 1 millionth order.
While this might not seem to dispel the “instant success,” myth mentioned above, a deeper look is
quite interesting. You might be surprised to learn that Amazon operated at a loss for just over 9 years.vii
In fact, the losses increased as revenue increased, which was contrary to expectations at first glance. A
deeper look reveals that the losses resulted from Amazon’s reinvestment that focused on expansion and
growth. But how did it eventually recover from what seemed at the time to be losses that appeared to be
spiraling out of control? Is there a secret to its eventual success?
In 2012, Bezos was reported to have changed the vision from “Earth’s Biggest Bookstore” to the
“Biggest Store on Earth.”viii Currently, Amazon boasts a more ambitious strategic vision of having
“Earth’s biggest selection and being the Earth’s most customer-centric company.”ix
Bezos has ascribed its success to using a “flywheel” strategyx where lower prices stimulate sales,
which allows fixed costs to be spread over more items, lowering costs in the long run. A flywheel
is a heavy object, which takes great force to move it, but once it moves, it has inertia that makes it
difficult to slow or stop it.
Bezos explains that feeding the movement of the flywheel can occur in many different ways
besides merely lowering prices.xi Procuring the Whole Foods chain not only builds revenues but also
provides potential for online grocery sales because the widely dispersed inventories in those stores
can enable them to serve as additional distribution centers.

Sources:
i
Emil Protalinski, “Amazon Reports $72.4 Billion in Q4 2018 Revenue: AWS up 45%, Subscriptions up 25%, and
‘Other’ up 95%,” Venturebeat, January 31, 2019, https://venturebeat.com/2019/01/31/amazon-earnings-q4-2018
(accessed February 9, 2019).
ii
Protalinski, January 31, 2019.
iii
Christina Farr, “Amazon’s Vision for the Future of Health care Is Becoming Clear,” CNBC.com, December 18,
2018, https://www.cnbc.com/2018/12/17/amazon-vision-future-health-care.html (accessed February 11, 2019).
iv
Nick Statt, “Why Amazon’s Future Depends on Moving from the Internet to the Physical World,” The Verge,
November 2, 2018, https://www.theverge.com/2018/11/2/18049672/amazon-go-of ine-retail-future-competition-
walmart-food-drink-grocery-sales (accessed February 9, 2019).
v
Alyssa Newcomb, “Amazon Delivers Its Shipping Intentions to FedEx, UPS, USPS via Regulatory Filing,” Febru-
ary 6, 2019, http://fortune.com/2019/02/05/amazon-shipping-delivery-ups-usps-fedex (accessed February 11, 2019).
vi
Fundable.com, “Amazon Startup Story,” https://www.fundable.com/learn/startup-stories/amazon (accessed
February 9, 2019).
vii
Juan Carlos Perez, “Amazon Records First Pro table Year in Its History,” Computerworld, January 28, 2004,
https://www.computerworld.com/article/2575106/amazon-records- rst-pro table-year-in-its-history.html (accessed
February 8, 2019).
viii
Robin Lewis, The Robin Report, January 24, 2012, https://www.therobinreport.com/amazon-from-earths-biggest-
bookstore-to-the-biggest-store-on-earth (accessed February 11, 2019).
ix
Scott Davis, “How Amazon’s Brand and Customer Experience Became Synonymous,” Forbes.com, July 14,
2016, https://www.forbes.com/sites/scottdavis/2016/07/14/how-amazons-brand-and-customer-experience-became-
synonymous/#1a4b9d643cd5 (accessed February 11, 2019).
32 THE INFORMATION SYSTEMS STRATEGY TRIANGLE

Case Study 1-1 (Continued)

x
Jeff Haden, “The 1 Principle Jeff Bezos and Amazon Follow to Fuel Incredible Growth,” Inc., June 28, 2017,
https://www.inc.com/jeff-haden/the-1-principle-jeff-bezos-and-amazon-follow-to-fuel-incredible-growth.html
(accessed February 9, 2019).
xi
Ibid.

Discussion Questions
1. How does Amazon’s Flywheel strategy fits with its evolving vision statements over the years?
2. Focusing on online product sales, which of the generic strategies does Amazon appear to be using
based on this case? Provide support for your choice.
3. How far could Bezos have gone in Amazon’s evolution without using information technology?
4. Assume that there is hypercompetition in product sales. How is Amazon responding to that envi-
ronment?
5. Are the newly announced endeavors in health care, Amazon Go! stores, and shipping services
consistent with Amazon’s vision? Defend your position.

Case Study 1-2 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 $1 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 more than doubled, rising from 16 billion Danish krone (DKK)
in 2010 to over 37.9 billion DKK in 2016, and in the same period, profit more than tripled, growing
from 3.7 billion DKK to 12.4 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 perfor-
mance, 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 man-
age 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 allowed children to build just
about anything their imagination could create. The new strategy broadened the products, targeting
new customer segments. Lego managers created 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 websites and blogs featur-
ing 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,”i describes the current culture at Lego.
 Discussion Questions 33

Case Study 1-2 (Continued)

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 appropri-
ate product innovation and sales. Key performance indicators encouraged product innovation that
catalyzed sales while decreasing costs. Development time dropped by 50%, and some manufactur-
ing 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 turn helped its bottom line.
Lego also expanded into the virtual world, extending into video gaming and virtual-interaction
games on the Internet. Thinking outside the company’s previous product concepts cut costs while
encouraging real-time feedback from customers across a global market. Additionally, Lego created
brand ambassadors to build communities of fellow customers across the world.
The growth put strains on the IS supporting the business. Order management and fulfillment
were particularly affected, resulting in the inability to meet customer demand. Employee manage-
ment systems were stretched as new employees were added to support the growth and additional
locations. Product design and development, especially the virtual and video games, required new
technology, too.
To solve some of these problems, Lego managers used the same approach they used for their blocks.
They created a modularized and standardized architecture for their IS, making it possible to expand
more quickly and add capacity and functionality as needed. They implemented an integrated enterprise
system that gave them new applications for human capital management, operations support, product life
cycle management, and data management. The new systems and services, purchased from vendors such
as SAP and IBM, simplified the IT architecture and the core management processes needed to oversee
the IS. For instance, the SAP system was used to get its supply chain management under control.ii
One manager at Lego summed it up nicely: “The toy world moves onwards constantly, and Lego
needs to re-invent itself continuously. Significant corporate re-shaping introduced new energy to the
company.”iii He went on to say that simplifying Lego’s IT systems and implementing an efficient
product development process that was able to maintain quality and cost favorably positioned Lego to
respond to the fast changing pace of the toy industry.
In 2016, Lego appointed Bali Padda as CEO, taking over for Knudstorp while Knudstorp remains
at Lego Group as its fourth owner and head of a new entity “Lego Brand Group.”iv Almost a year
later, Knudstorp moved into the role of Executive Chairman, and Lego hired another new CEO,
Niels B. Christiansen, to replace Padda, who remains as a special advisor to Lego.v
These executive changes can be explained by an 8% decline in revenue and 17% decline in
profit in 2017,vi from 2016, its best year ever.vii Besides making those executive changes, Lego also
increased its digital offerings, added to its distribution network, and cut the workforce by 1,400
jobs in late 2017, a reduction of 8%.viii Christiansen reported that Lego was becoming too large and
complex, while a toy analyst reported that the market for Legos was becoming saturatedix and the
European shopping behavior for toys has changed. Spurred by a 4% growth in revenue in 2018, Lego
is now turning its gaze to China where it plans to more than double its store count.x

Sources: Adapted from http://www.nytimes.com/2009/09/06/business/global/06lego.html (accessed August 21,

2015); Brad Wieners, “Lego Is for Girls,” December 19, 2011, 68–73; information from Lego’s 2012 annual report,
http://www.lego.com/en-us/aboutus/news-room/2013/february/annual-result-2012 (accessed March 29, 2015); and
“Lego Case Study,” http://thelegocasestudy.com (accessed March 29, 2015).
i
Nelson D. Schwartz, “Turning to Tie-Ins, Lego Thinks Beyond the Brick,” The New York Times, September 5, 2009,
http://www.nytimes.com/2009/09/06/business/global/06lego.html?pagewanted=all&_r=0 (accessed August 21,
2015); https://www.vmware.com/ les/pdf/partners/sap/sap-vmware-lego-cs-en.pdf (accessed September 11, 2015).
ii
I. M. Sebastian, J. W. Ross, C. Beath, M. Mocker, K. G. Moloney, and N. O. Fonstad, “How Big Old Companies
Navigate Digital Transformation,” MIS Quarterly Executive 16, no. 3 (2017), 197–213.
iii
IBM and SAP, “LEGO creates model business success with SAP and IBM,” 2010, https://www.vmware.com/ les/
pdf/partners/sap/sap-vmware-lego-cs-en.pdf (accessed September 11, 2015).
iv
Roar Rude Trangbæk, “Bali Padda Appointed New CEO of the Lego Group,” Lego.com, December 6, 2016,
https://www.lego.com/en-us/aboutus/news-room/2016/december/bali-padda-new-ceo/ (accessed February 12, 2019).
34 THE INFORMATION SYSTEMS STRATEGY TRIANGLE

Case Study 1-2 (Continued)

v
Roar Rude Trangbæk, “The Lego Group Appoints Niels B. Christiansen as CEO,” Lego.com, August 10, 2017,
https://www.lego.com/en-us/aboutus/news-room/2017/august/niels-b-christiansen-new-ceo (accessed February 12,
2019).
vi
Lego Group Media Relations, “Lego Group Reports Full Year Results from 2017,” Lego.com, March 6, 2018, https://
www.lego.com/en-us/aboutus/news-room/2018/march/annual-results-2017 (accessed February 12, 2019).
vii
Roar Rude Trangbæk, “The Lego Group Reports Record Revenue in 2016,” Lego.com, March 9, 2017, https://
www.lego.com/en-us/aboutus/news-room/2017/march/annual-results-2016 (accessed February 12, 2019).
viii
Ivana Kottasová, “Lego’s Sales Drop for the First Time in 13 Years,” CNN Business, March 6, 2018, https://
money.cnn.com/2018/03/06/investing/lego-revenue-drop-star-wars/index.html (accessed February 12, 2019).
ix
Ibid.
x
Saabira Chaudhuri, Lego Steams Back into Growth, Wall Street Journal, February 28, 2019, B3.

Discussion Questions
1. How did the IS and the organization design changes implemented by Knudstorp align with the
changes in business strategy?
2. Which of the generic strategies does Lego appear to be using based on this case? Provide support for
your choice.
3. Are the changes implemented by Knudstorp an indication of hypercompetition? Defend your
position.
4. What advice would you give Knudstorp and Christiansen to move Lego out of the recent dol-
drums and to return to growth and relevance?
 2
Strategic Use of Information Resources

This chapter introduces the concept of building competitive advantage using information systems-
based applications. It begins with a discussion of a set of eras that describe the use of information
resources historically. It then presents information resources as strategic tools, discussing
information technology (IT ) assets and IT capabilities. Michael Porter’s Five Competitive Forces
model then provides a framework for discussing strategic advantage, and his Value Chain model
addresses tactical ways organizations link their business processes to create strategic partnerships.
We then introduce the Piccoli and Ives model to show how strategic advantage may be sustained in
light of competitive barriers while the Resource-Based View focuses on gaining and maintaining
strategic advantage through information and other resources of the firm. The chapter concludes
with a brief discussion of strategic alliances, co-opetition, risks of strategic use of IT, and cocreating
IT and business strategy. Just as a note: this chapter uses the terms competitive advantage and
strategic advantage interchangeably.

Zara, a global retail and apparel manufacturer based in Arteixo, Spain, needed a dynamic business model
to keep up with the ever-changing demands of its customers and industry. At the heart of its model was a set
of business processes and an information system that linked demand to manufacturing and manufacturing
to distribution. The strategy at Zara stores was simply to have a continuous flow of new products that were
typically in limited supply. As a result, regular customers visited their stores often—an average of 17 times
a year, whereas many retail stores averaged only four times a year. When customers saw something they
liked, they bought it on the spot because they knew it would probably be gone the next time they visited
the store. The result was a very loyal and satisfied customer base and a wildly profitable business model.
How did Zara do it? It was possible in part because the company aligned its information system strategy
with its business strategy. An early version of its corporate website gave some insight:
Zara’s approach to design is closely linked to our customers. A non-stop flow of information from stores conveys
shoppers’ desires and demands, inspiring our 200-person strong creative team.1
Zara described its revised core value statement on its corporate site, which was recently restated
for a more general audience, only using four simple words: beauty, clarity, functionality, and sustain-
ability.2 However, accomplishing this is not so simple. Martin Roll showed in an extensive analysis of
Zara that such a strategy is accomplished only through an amazing orchestration of information systems
(IS), employing two important rules: “To give customers what they want” and “get it to them faster than
anyone else.”3 While other brands can take six months to get their new designs into stores, Zara can get a
new design created and in stores within two weeks. Producing about 12,000 new designs each year and

1
Inditex website, http://www.inditex.com/en/who_we_are/concepts/zara (accessed February 20, 2012).
2
Inditex, “About Us,” https://www.inditex.com/about-us/our-brands/zara (accessed February 17, 2019).
3
Martin Roll, “The Secret of Zara’s Success: A Culture of Customer Co-creation,” March 2018, https://martinroll.com/resources/articles/
strategy/the-secret-of-zaras-success-a-culture-of-customer-co-creation/ (accessed February 17, 2019).

35
36 STRATEGIC USE OF INFORMATION RESOURCES

manufacturing over 450 million items requires a well-oiled supply chain coupled with more than simple
daily sales reports.
Zara is constantly vigilant, on the lookout for new design trends, so they can stock their shelves with
items that are still likely to be top-of-mind for customers. Those trends often come from fashion influencers
such as actors, actresses, and other celebrities worldwide. Zara also captures comments from customers,
visits college campuses and nightclubs, and even notes what their customers are wearing in their stores, to
find new fashion ideas. In short, customers help co-create fashions that will appear in Zara stores.4
An interesting illustration of Zara’s rapid response is that four women visited separate Zara stores in
Tokyo, Toronto, San Francisco, and Frankfurt, asking for pink scarves. Over the next few days, this story
was repeated in other stores globally. One week later, Zara sent 500,000 pink scarves to 2,000 stores
globally, which sold out in three days. This story illustrates how trends begin on a small scale but develop
rapidly. Thanks to meticulous use of IS, Zara is equipped to handle that rapid development and reach the
fashion market before the inevitable decline.5
The entire process from factory to shop floor is coordinated from Zara’s headquarters by using IS. The
point-of-sale (POS) system on the shop floor records the information from each sale, and the information
is transmitted to headquarters at the end of each business day. Using a handheld device, the Zara shop
managers also report daily to the designers at headquarters to let them know what has sold and what the
customers wanted but couldn’t find. The information is used to determine which product lines and colors
should be kept and which should be altered or dropped. The designers communicate directly with the pro-
duction staff to plan for the incredible number of designs that are manufactured every year. 6
The shop managers have the option to order new designs twice a week using mobile devices. Before
ordering, they can use these devices to check out the new designs. Once an order is received at the manu-
facturing plant at headquarters, a large computer-controlled piece of equipment calculates how to position
patterns to minimize scrap and cut up to 100 layers of fabric at a time. The cut fabric is then sent from Zara
factories to external workshops for sewing. The completed products are sent to distribution centers where
miles of automated conveyor belts are used to sort the garments and recombine them into shipments for
each store. Zara’s IS department wrote the applications controlling the conveyors, often in collaboration
with vendors of the conveyor equipment.
As the Zara example illustrates, innovative use of a firm’s information resources can provide it sub-
stantial and sustainable advantages over competitors. Every business depends on IS, making its use a
necessary resource every manager must consider. IS can also create a strategic advantage for firms that
bring creativity, vision, and innovation to their IS use. The Zara case is an example. This chapter uses the
business strategy foundation from Chapter 1 to help general managers visualize how to use information
resources for competitive advantage. This chapter highlights the difference between simply using IS and
using IS strategically. It also explores the use of information resources to support the strategic goals of an
organization.
The material in this chapter can enable a general manager to understand the linkages between business
strategy and information strategy on the Information Systems Strategy Triangle. General managers want to
find answers to questions such as: Does using information resources provide a sustainable and defendable
competitive advantage? What tools are available to help shape strategic use of information? What are the
risks of using information resources to gain strategic advantage?

Evolution of Information Resources

The Eras model (Figure 2.1) summarizes the evolution of information resources over the past six decades.
To think strategically about how to use information resources now and in the future within the firm, a man-
ager must understand how the company arrived at where it is today. This model provides a good overview
of trends and uses that have gotten the company from simple automation of tasks to extending relation-
ships and managing their business ecosystems to where it is today.

4
Ibid.
5
Ibid.
6
Shenay Kentish, “Zara,” October 18, 2011, http://versemag.com.au/special-interest/zara/ (accessed February 17, 2019).
 Evolution of Information Resources 37

Era IV Era VI Era VII

Era I 1960s Era II 1970s Era III 1980s 1990s Era V 2000s 2010s 2020+
Primary Role Efficiency Effectiveness Strategy Strategy Value creation Value Value
of IT extension capture

Automate Solve Increase Transform Create Create Connect

existing problems individual industry/ collaborative community intelligent
paper-based and create and group organization partnerships and social devices;
processes opportunities effectiveness business Establish
platforms;
Harness big
data

Justify IT Return on Increase in Competitive Competitive Added value Creation of New revenue
Expenditures investment productivity position position relationships models
and better
decision
quality

Target of Organization Organization/ Individual Business Customer/ Customer/ Platforms

Systems Group manager/ processes Supplier Employee/
Group relationships supplier
ecosystem

Information Application Data driven User driven Business Knowledge People Big Data
Models specific driven driven driven (or driven
relationship
driven)

Dominant Mainframe, Minicomputer, Microcomputer, Client server, Internet, Social Intelligent

Technology “centralized mostly “decentralized “distributed global platforms, devices,
intelligence” “centralized intelligence” intelligence” “ubiquitous social sensors,
intelligence” intelligence” networks, electronics,
mobile, platforms
cloud

Basis of Scarcity Scarcity Scarcity Plenitude Plenitude Hyperplenitude

Value

Underlying Economics of Economics of Economics of Economics of Economics of Economics of Economics of

Economics information information information information information relationships information
bundled with bundled with bundled with separated separated bundled with and data
economics of economics of economics of from from economics of bundled with
things things things economics of economics of information economics
things things of things

FIGURE 2.1 Eras of information usage in organizations.

IS strategy from the 1960s to the 1990s was driven by internal organizational needs. First came the
need to lower existing transaction costs. Next was the need to provide support for managers by collecting
and distributing information followed by the need to redesign business processes. As competitors built
similar systems, organizations lost any advantages they had derived from their IS, and competition within
a given industry once again was driven by forces that existed prior to the new technology. Most recently,
enterprises have found that social IT platforms and capabilities drive a new evolution of applications,
processes, and strategic opportunities that often involve an ecosystem of partners rather than a list of sup-
pliers. Business ecosystems are collections of interacting participants, including vendors, customers, and
other related parties, acting in concert to do business.7
In Eras I through III, the value of information was tied to physical delivery mechanisms. In these
eras, value was derived from scarcity reflected in the cost to produce the information. Information,
like diamonds, gold, and MBA degrees, was more valuable because it was found in limited quantities.

7
For further discussion of business ecosystems, refer to Nicholas Vitalari and Hayden Shaughnessy, The Elastic Enterprise (Longboat Key,
FL: Telemachus Press, 2012).
38 STRATEGIC USE OF INFORMATION RESOURCES

However, the networked economy beginning in Era IV drove a new model of value—value from plenitude.
Network effects offered a reason for value derived from plenitude; the value of a network node to a
person or organization in the network increased when others joined the network. For example, an e-mail
account has no value without at least one other e-mail account with which to communicate. As e-mail
accounts become relatively ubiquitous, the value of having an e-mail account increases as its potential
for use increases. Further, copying additional people on an e-mail is done at a very low cost (virtually
zero), and the information does not wear out (although it can become obsolete). As the cost of producing
an additional copy of an information product within a network becomes trivial, the value of that network
increases. Therefore, rather than using production costs to guide the determination of price, information
products might be priced to reflect their value to the buyer.8
As each era begins, organizations adopt a strategic role for IS to address not only the firm’s internal cir-
cumstances but also its external circumstances. Thus, in the value-creation era (Era V), companies sought
those applications that again provided them an advantage over their competition and kept them from being
outgunned by start-ups with innovative business models or traditional companies entering new markets.
For example, companies such as Microsoft, Google, Apple, and Facebook created and maintained a com-
petitive advantage by building technical platforms and organizational competencies that allowed them
to bring in partners as necessary to create new products and services for their customers. Their business
ecosystems give them agility as well as access to talent and knowledge, extending the capabilities of their
internal staff. Other firms simply try to solve all customer requests themselves.
Eras VI and VII have brought another paradigm shift in the use of information with an era of hyper-
plenitude: seemingly unlimited availability of information resources as the Internet and processing and
storage through cloud computing sparked new value sources such as community and social business and
the Internet of Things (connecting intelligent devices, sensors, and other electronics).
The Information System Strategy Triangle introduced in Chapter 1 reflects the linkages between a
firm’s IS strategy, organizational strategy, and business strategy. Maximizing the effectiveness of the firm’s
business strategy requires that the general manager be able both to identify and use information resources,
for either enhancing revenues or cutting costs. Many managers are fond of cost cutting because it enhances
the “bottom line” (net income) results directly. Increasing sales, on the other hand, usually has costs that
need to be deducted first. For instance, in the FedEx example in Chapter 1, cutting costs by $90 million
would increase the bottom line by $90 million. However, selling $90 million of services will require staff-
ing, wear and tear on trucks, and supplies such as gasoline. The net bottom line result will only increase
after deducting those expenses.
This chapter describes how information resources can be used strategically by general managers, in
searching for opportunities to fulfill both internal and external requirements of the firm.

Information Resources as Strategic Tools

Crafting a strategic advantage requires the general manager to cleverly combine all the firm’s resources,
including financial, production, human, and information, and to consider external resources such as
the Internet, platform contributors outside the firm, and opportunities in the global arena. Information
resources are more than just the infrastructure. This generic term, information resources, is defined as the
available data, technology, people, and processes within an organization to be used by the manager to per-
form business processes and tasks. Information resources can either be assets or capabilities. An IT asset
is anything, tangible or intangible, that can be used by a firm to create, produce, and/or offer its products
(goods or services). Examples of IT assets include a firm’s website, data files, or computer equipment. An
IT capability is something that is learned or developed over time for the firm to create, produce, or offer
its products. An IT capability makes it possible for a firm to use its IT assets effectively.9 The ability and
knowledge to create a website, work with data files, and take advantage of IT equipment are examples of
capabilities.

8
Adapted from M. Broadbent, P. Weill, and D. Clair, “The Implications of Information Technology Infrastructure for Business Process
Redesign,” MIS Quarterly 23, no. 2 (1999), 163.
9
G. Piccoli and B. Ives, “IT-Dependent Strategic Initiatives and Sustained Competitive Advantage: A Review and Synthesis of the Literature,”
MIS Quarterly 29, no. 4 (2003), 747–76.
 Information Resources as Strategic Tools 39

An IS infrastructure (a concept that is discussed in detail in Chapter 6) is an IT asset. It includes each

of an information resource’s constituent components (i.e., data, technology, people, and processes). The
infrastructure provides the foundation for the delivery of a firm’s products or services. Another IT asset is
an information repository, which is logically related data captured, organized, and retrieved by the firm.
Some information repositories are filled with internally oriented information designed to improve the
firm’s efficiency. Other repositories tap the external environment and contain significant knowledge about
the industry, the competitors, and the customers. Although most firms have these types of information
repositories, not all firms use them effectively.
In the continually expanding web space, the view of IT assets is broadening to include potential
resources that are available to the firm but that are not necessarily owned by it. These additional informa-
tion resources are often available as a service rather than as a system to be procured and implemented
internally. For example, Internet-based software (also called software as a service, or SAAS), such as
SalesForce.com, offers managers the opportunity to find new ways to manage their customer information
with an externally based IT resource. Social networking systems such as Facebook and LinkedIn offer
managers the opportunity to find expertise or an entire network of individuals ready to participate in the
corporate innovation processes using relatively little capital or expense.
The three major categories of IT capabilities are technical skills, IT management skills, and relationship
skills. Technical skills are applied to designing, developing, and implementing IS. IT management skills
are critical for managing the IS department and IS projects. They include an understanding of business
processes, the ability to oversee the development and maintenance of systems to support these processes
effectively, and the ability to plan and work with the business units in undertaking change. Relationship
skills can be focused either externally or internally. An externally focused relationship skill includes the
ability to respond to the firm’s market and to work with customers and suppliers. The internal relationship
between a firm’s IS managers and its business managers is a spanning relationship skill and includes the
ability of IS to manage partnerships with the business units. Even though it focuses on relationships in
the firm, it requires spanning beyond the IS department. Relationship skills develop over time and require
mutual respect and trust. They, like the other information resources, can create a unique advantage for a
firm. Figure 2.2 summarizes the different types of information resources and provides examples of each.
Information resources exist in a company alongside other resources. The general manager is responsi-
ble for organizing all resources so that business goals are met. Understanding the nature of the resources at
hand is a prerequisite to using them effectively. By aligning IS strategy with business strategy, the general
manager maximizes the company’s profit potential. To ensure that information resources being deployed
for strategic advantage are used wisely, the general manager must identify what makes the information
resource valuable (and the Eras model may provide some direction) and sustainable. Meanwhile, the firm’s

IT Assets IT Capabilities
IT Infrastructure Technical Skills
• Hardware • Proficiency in systems analysis
• Software and company apps • Programming and web design skills
• Network • Data analysis/data scientist skills
• Data • Network design and implementation skills
• Website IT Management Skills
Information Repository • Business process knowledge
• Customer information • Ability to evaluate technology options
• Employee information • Project management skills
• Marketplace information • Envisioning innovative IT solutions
• Vendor information Relationship Skills
• Spanning skills such as business-IT relationship management
• External skills such as vendor and platform management

FIGURE 2.2 Information resources.

Source: Adapted from G. Piccoli and B. Ives, “IT-Dependent Strategic Initiatives and Sustained Competitive Advantage: A Review and Synthesis of
the Literature,” MIS Quarterly 29, no. 4 (2005), 755.
40 STRATEGIC USE OF INFORMATION RESOURCES

competitors are working to do the same. In this competitive environment, how should the information
resources be organized and applied to enable the organization to compete most effectively?

How Can Information Resources Be Used Strategically?

The general manager confronts many elements that influence the competitive environment of his or her
enterprise. Overlooking a single element can bring about disastrous results for the firm. This slim tolerance
for error requires the manager to take multiple views of the strategic landscape. Three such views can help
a general manager align IS strategy with business strategy. The first view uses the five competitive forces
model by Michael Porter to look at the major influences on a firm’s competitive environment. Information
resources should be directed strategically to alter the competitive forces to benefit the firm’s position in the
industry. The second view uses Porter’s value chain model to assess the internal operations of the organiza-
tion and partners in its supply chain. Information resources should be directed at altering the value-creating
or value-supporting activities of the firm. We extend this view further to consider the value chain of an
entire industry to identify opportunities for the organization to gain competitive advantage. The third view
specifically focuses on the types of IS resources needed to gain and sustain competitive advantage. These
three views provide a general manager with varied perspectives from which to identify strategic opportuni-
ties to apply the firm’s information resources.

Using Information Resources to Influence Competitive Forces

Porter provides the general manager a classic view of the major forces that shape the competitive environ-
ment of an industry, which affects firms within the industry. These five competitive forces are shown in
Figure 2.3 along with some examples of how information resources can be applied to influence each force.
This view reminds the general manager that competitive forces result from more than just the actions of
direct competitors. We explore each force in detail from an IS perspective.

Strategic use 1 Strategic use

• Cost effectiveness • Switching costs
• Market access Potential Threat of • Access to distribution
• Differentiation of New Entrants channels
product or service • Economies of scale

5
3 2
Bargaining Power Bargaining Power
of Suppliers of Buyers

Industry Competitors
Strategic use Strategic use
• Selection of supplier • Buyer selection
• Threat of backward • Switching costs
integration • Differentiation
4
Threat of Substitute
Strategic use
Products
• Redefine products and
services
• Improve price/performance

FIGURE 2.3 Five competitive forces with potential strategic use of information resources.
Sources: Adapted from M. Porter, Competitive Strategy (New York: The Free Press, 1998); Lynda M. Applegate, F. Warren McFarlan, and James L.
McKenney, Corporate Information Systems Management: The Issues Facing Senior Executives, 4th ed. (Homewood, IL: Irwin, 1996).
 How Can Information Resources Be Used Strategically? 41

Potential Threat of New Entrants

Existing firms within an industry often try to reduce the threat of new entrants to the marketplace by
erecting barriers to entry. New entrants seem to come out of nowhere; established firms can diversify their
business models and begin to compete in the space occupied by existing firms, or an enterprising entre-
preneur can create a new business that changes the game for existing firms. Barriers to entry—including
a firm’s controlled access to limited distribution channels, public image of a firm, unique relationships
with customers, and an understanding of their industry’s government regulations—help the firm create
a stronghold by offering products or services that are difficult to displace in the eyes of customers based
on apparently unique features. Information resources also can be used to build barriers that discourage
competitors from entering an industry. For example, Google’s search algorithm is a source of competitive
advantage for the search company, and it’s a barrier of entry for new entrants that would have to create
something better to compete against Google. New entrants have failed to erode Google’s market share,
which continues to fulfill about 63% of all searches in the United States, over 93% of mobile searches,10
and over 90% of all searches in Europe.11 Walmart, another example, effectively blocks competition with
its inventory control system, which helps it drive down expenses and ultimately offer lower costs to cus-
tomers. Any company entering Walmart’s marketplace would have to spend millions of dollars to build the
inventory control system and IS required to provide its operations with the same capabilities. Therefore,
the system at Walmart may be a barrier to entry for new companies.
Search engine optimization (actions that a firm can take to improve its prominence in search results) has
served as a barrier to entry for some businesses. Consider the website that has the number one position in
a user’s search. There is only one number one position, making it an advantage for the company enjoying
that position and a barrier for all other websites seeking that position.

Bargaining Power of Buyers

Customers often have substantial power to affect the competitive environment. This power can take the
form of easy consumer access to several retail outlets to purchase the same product or the opportunity
to purchase in large volumes at superstores such as Walmart. Information resources can be used to build
switching costs that make it less attractive for customers to purchase from competitors. Switching costs
can be any aspect of a buyer’s purchasing decision that decreases the likelihood of “switching” his or her
purchase to a competitor. Such an approach requires a deep understanding of how a customer obtains the
product or service. For example, Amazon.com’s “Prime” subscription provides access to fast and free
shipping as well as an expanding library of original and third-party digital content. Amazon.com also
stores buyer information, including a default credit card number, shipping method, and “ship-to” address,
so that purchases can be made with one click, saving consumers the effort of data reentry and further repet-
itive choices. Similarly, Apple’s iTunes simple-to-use interface and proprietary software for downloading
and listening to music makes it difficult for customers to use other formats and technologies, effectively
reducing the power of the buyers, the customers.

Bargaining Power of Suppliers

Suppliers’ bargaining power can reduce a firm’s options and ultimately its profitability. Suppliers often
strive to “lock in” customers through the use of systems (and other mechanisms). For example, there are
many options for individuals to back up their laptop data, including many “cloud” options. The power of
any one supplier is low because there are a number of options. But Apple’s operating system enables easy
creation of backups and increases Apple’s bargaining power. Millions of customers find it easy to use
iCloud, and they do.
The force of bargaining power is strongest when a firm has few suppliers from which to choose, the
quality of supplier inputs is crucial to the finished product, or the volume of purchases is insignificant to
the supplier. For example, steel firms lost some of their bargaining power over the automobile industry
because car manufacturers developed technologically advanced quality control systems for evaluating the

10
Statista.com, “Share of Search Queries Handled by Leading U.S. Search Engine Providers as of October 2018,” https://www.statista.com/
statistics/267161/market-share-of-search-engines-in-the-united-states/ (accessed February 17, 2019).
11
Statista.com, “Worldwide Desktop Market Share of Leading Search Engines from January 2010 to October 2018,” https://www.statista.
com/statistics/216573/worldwide-market-share-of-search-engines/ (accessed February 17, 2019).
42 STRATEGIC USE OF INFORMATION RESOURCES

steel they purchase. Manufacturers can now reject steel from suppliers when it does not meet the required
quality levels.
Through the Internet, firms continue to provide information for free as they attempt to increase their
share of visitors to their websites and gather information about them. This decision reduces the power of
information suppliers and necessitates finding new ways for content providers to develop and distribute
information. Many Internet firms are integrating backward or sideways within the industry, that is, creat-
ing their own information supply and reselling it to other Internet sites. Well-funded firms simply acquire
these content providers, which is often quicker than building the capability from scratch. One example of
this is Amazon.com’s purchases of Zappos, the shoe retailer, and Whole Foods, a grocery chain. In 2015,
LinkedIn acquired online learning company Lynda.com to add a capability to offer professional develop-
ment to the company’s business of networking, recruitment, and advertising.

Threat of Substitute Products

The potential of a substitute product in the marketplace depends on the buyers’ willingness to substitute,
the relative price-to-performance ratio of the substitute, and the level of switching costs a buyer faces.
Information resources can create advantages by reducing the threat of substitution. Substitutes that cause
a threat come from many sources. Internal innovations can cannibalize existing revenue streams for a
firm. For example, new iPhones motivate current customers to upgrade, essentially cannibalizing the older
product line’s revenue. Of course, this is also a preemptive move to keep customers in the iPhone product
family rather than to switch to another competitor’s product. The threat might come from potentially new
innovations that make the previous product obsolete. Tablets and smartphones have reduced the market
for laptops and personal computers. GPSs have become substitutes for paper maps. Most interesting is the
way digital cameras made film and film cameras obsolete, and then more recently, smartphones are replac-
ing digital cameras. Similarly, digital music sharply reduced the market for vinyl records, record players,
CDs, and CD players, and now paid streaming is replacing the purchase of digital songs. Free web-based
applications are a threat to software vendors who charge for their products and who do not have web-based
delivery. Revolutions of many kinds and levels of maturity seem to be lurking everywhere. Cloud services
are a substitute for data centers. Uber offers a substitute for taxicabs. Online news sites have reduced the
size of the physical newspaper market. Foldable 5G smartphones have the potential to reduce the demand
for nearly every flat smartphone and tablet produced through 2018, combining their advantages into one
unit. Managers must watch for potential substitutes, over and over again, from many different sources to
fully manage competitive threats.

Industry Competitors
Rivalry among the firms competing within an industry is high when it is expensive for a firm to leave the
industry, the growth rate of the industry is declining, or products have lost differentiation. Under these
circumstances, the firm must focus on the competitive actions of rivals to protect its own market share.
Intense rivalry in an industry ensures that competitors respond quickly to any strategic actions. Facebook
enjoys a competitive advantage in the social networking industry. Other sites have tried to compete with
Facebook by offering a different focus, a different type of interface, or additional ways to network. Com-
petition is fierce, and many start-ups hope to “be the next Facebook.” However, Facebook continues to
lead the industry, in spite of some infamous bad press in 2018 and 2019. They continue to see revenue
increases in spite of the negative privacy revelations12 in part by continued innovation and in part by its
huge customer base, which continues to raise the bar for competitors.
The processes that firms use to manage their operations and to lower costs or increase efficiencies
can provide an advantage for cost-focus firms. However, as firms within an industry begin to implement
standard business processes and technologies—often using enterprisewide systems such as those of SAP
and Oracle—the industry becomes more attractive to consolidation through acquisition. Standardizing IS
lowers the coordination costs of merging two enterprises and can result in a less competitive environment
in the industry.

12
Irina Ivanova, “Facebook Earnings Jump 61 Percent Despite Bad Press,” CBS News.com, January 30, 2019, https://www.cbsnews.com/
news/facebook-earnings-jump-61-percent-revenue-growth-despite-bad-press/ (accessed March 6, 2019).
 How Can Information Resources Be Used Strategically? 43

Competitive Force IT Influence on Competitive Force

Threat of New Zara’s IT supports its tightly knit group of designers, market specialists, production managers, and
Entrants production planners. New entrants are unlikely to be able to provide IT to support such relationships that
have been built over time at Zara. Further, it has a rich information repository about customers that would
be hard to replicate.

Bargaining Power Zara has employed laser technology to measure 10,000 women volunteers so that it can add the
of Buyers measurements of “real” customers into its information repositories. Zara also takes into account climate,
geographic average sizes, and culture differences so that new products will be more likely to reach the
right markets and will fit the customers.

Bargaining Power Its computer-controlled cutting machine cuts up to 1,000 layers at a time. A large number of sources
of Suppliers are available for the simple task of sewing the pieces together. Zara has great flexibility in choosing the
sewing companies.

Industry Zara tracks breaking trends and focuses on meeting customer preferences for trendy, low-cost fashion. The
Competitors result is highly fashion-responsive inventories, only two scheduled reduced-price sales events per year,
virtually no advertising, very small volumes of stock remaining unsold, very low inventory levels, new
products offered in 15 days from idea to shelves, and extremely efficient manufacturing and distribution
operations.

Threat of IT helps Zara offer extremely fashionable lines that are expected to last for approximately 10 wears. IT
Substitute Products enables Zara to offer trendy, appealing apparel at hard-to-beat prices, making substitutes difficult.

FIGURE 2.4 Application of ve competitive forces model for Zara.

One way competitors differentiate themselves with an otherwise undifferentiated product is through
creative use of IS. Information provides advantages in such competition when added to an existing product.
For example, the iPod, iPhone, iPad, and iWatch are differentiated in part because of the iTunes store and
the applications available only to users of these devices. Competitors offer some of the same information
services, but Apple was able to take an early lead by using IS to differentiate their products. Credit card
companies normally compete on financial services such as interest rate, fees, and payment period. But
Capital One differentiated its credit cards by adding information to its services; it provided customers with
their credit scores.
Each of the competitive forces identified by Porter’s model is acting on firms at all times, but perhaps to
a greater or lesser degree. There are forces from potential new entrants, buyers, sellers, substitutes, and com-
petitors at all times, but their threat varies. Consider Zara, the case discussed at the beginning of this chapter.
See Figure 2.4 for a summary of these five forces working simultaneously at the retailer and manufacturer.
General managers can use the five competitive forces model to identify the key forces currently affect-
ing competition, to recognize uses of information resources to influence the forces, and to consider likely
changes in these forces over time. The changing forces drive both the business strategy and IS strategy,
and this model provides a way to think about how information resources can create competitive advantage
for a business unit and, even more broadly, for the firm. The forces also can reshape an entire industry—
compelling general managers to take actions to help their firm gain or sustain competitive advantage.

Using Information Resources to Alter the Value Chain

A second lens for describing the strategic use of IS is Porter’s value chain. The value chain model addresses
the activities that create, deliver, and support a company’s product or service. Porter divided these activi-
ties into two broad categories (Figure 2.5): support and primary activities. Primary activities relate directly
to the value created in a product or service, whereas support activities make it possible for the primary
activities to exist and remain coordinated. Each activity may affect how other activities are performed,
suggesting that information resources should not be applied in isolation. For example, more efficient
IS for repairing a product may increase the possible number of repairs per week, but the customer does
not receive any value unless his or her product is repaired, which requires that the spare parts be avail-
able. Changing the rate of repair also affects the rate of spare parts ordering. If information resources are
focused too narrowly on a specific activity, then the expected value may not be realized because other parts
of the chain have not adjusted.
44 STRATEGIC USE OF INFORMATION RESOURCES

Support Activities
Organization

Human Resources

Technology

Purchasing

Inbound Operations Outbound Marketing Service

Primary Activities
Logistics Logistics and Sales
Materials Manufacturing Order Product Customer service
handling Assembly processing Pricing Repair
Delivery Shipping Promotion
Place

FIGURE 2.5 Value chain of the rm.

Source: Adapted from Michael Porter and Victor Millar, “How Information Gives You Competitive Advantage,” Harvard Business Review (July–
August 1985), reprint no. 85415.

The value chain framework suggests that competition stems from two sources: lowering the cost to
perform activities and adding value to a product or service so that buyers will pay more. To achieve true
competitive advantage, a firm requires accurate information on elements outside itself. Lowering activity
costs achieves an advantage only if the firm possesses information about its competitors’ cost structures.
Even though reducing isolated costs can improve profits temporarily, it does not provide a clear competi-
tive advantage unless the firm can lower its costs below a competitor’s. Doing so enables the firm to lower
its prices as a way to grow its market share.
For example, many websites sell memory to upgrade laptops. But some sites, such as crucial.com, have
an option that automates the process prior to the sales process. The “Crucial System Scanner Tool” scans
the customer’s laptop, identifies the current configuration and the capacity, and then suggests compatible
memory upgrade kits. The scanner then automatically opens a web page with the appropriate memory
upgrades, enabling an immediate purchase. The customer does not have to figure out the configuration
or requirements; it’s done automatically. By combining a software program like its configurator with the
sales process, crucial.com has added value to the customer’s experience by automating and eliminating
most of the inconvenience of a key process.
Although the value chain framework emphasizes the activities of the individual firm, it can be extended,
as in Figure 2.6, to include the firm in a larger value system. This value system is a collection of firm value
chains connected through a business relationship and through technology. From this perspective, various
strategic opportunities exist to use information resources to gain a competitive advantage. Understanding
how information is used within each value chain of the system can lead to new opportunities to change the
information component of value-added activities. It can also lead to shakeouts within the industry as firms
that fail to provide value are forced out and as surviving firms adopt new business models.
Opportunity also exists in the transfer of information across value chains. For example, sales forecasts
generated by a manufacturer, such as a computer or automotive company, and linked to supplier systems
create orders for the manufacture of the necessary components for the computer or vehicle. Often this
coupling is repeated from manufacturing company to vendor/supplier for several layers, linking the value
chains of multiple organizations. In this way, each member of the supply chain adds value by directly
linking the elements of its value chains to others.
Optimizing a company’s internal processes, such as its supply chain, operations, and customer relation-
ship processes, can be another source of competitive advantage. Tools are routinely used to automate the
internal operations of a firm’s value chain, such as supply chain management (SCM) to source materi-
als for operations, enterprise resource planning (ERP) systems to automate functions of the operations
activities of the value chain, and customer relationship management (CRM) systems to optimize the
processing of customer information. These systems are discussed in more detail in Chapter 5.
In an application of the value chain model to the Zara example discussed earlier, Figure 2.7 describes
the value added to Zara’s primary and support activities provided by IS. The focus in Figure 2.7 is on
value added to Zara’s processes, but suppliers and customers in its supply chain also realize the value
 How Can Information Resources Be Used Strategically? 45

Supplier’s Firm’s Channel’s Buyer’s

Value Value Value Value
Chains Chain Chains Chains

FIGURE 2.6 e value system: interconnecting relationships between organizations.

Activity Zara’s Value Chain

Primary Activities

Inbound Logistics IT-enabled just-in-time (JIT) strategy results in inventory being received when needed. Most dyes are
purchased from its own subsidiaries to better support JIT strategy and reduce costs. Many suppliers are
located near its production facilities.

Operations IS support decisions about the fabric, cut, and price points. Cloth is ironed and products are packed on
hangers so they don’t need ironing when they arrive at stores. Price tags are already on the products.
Zara produces 50% of its merchandise in house. Fabric is cut and dyed by robots in 12 highly
automated factories in Spain, Portugal, and Turkey. Factories are provided with substantial idle time
(up to 85%) to be able to respond to rapid changes in demand.13

Outbound Logistics Clothes move on miles of automated conveyor belts at distribution centers and reach stores within
48 hours of the order.

Marketing and Sales Limited inventory allows a low percentage of unsold inventory and only two scheduled discount sales
per year. POS at stores linked to headquarters track how items are selling. Customers ask for what they
want, and this information is transmitted daily from stores to designers over handheld computers.

Service No focus on service on products.

Support Activities

Organization IT supports tightly knit collaboration among designers, store managers, market specialists, production
managers, and production planners.

Human Resources Managers are trained to understand what’s selling and report data to designers every day. The manager
is key to making customers feel listened to and to communicating with headquarters to keep each store
and the entire Zara clothing line at the cutting edge of fashion.

Technology Technology is integrated to support all primary activities. Zara’s IT staff works with vendors to
develop automated conveyors to support distribution activities.

Purchasing Vertical integration reduces the amount of purchasing needed.

FIGURE 2.7 Application of the value chain model to Zara.

13
Ivalua, “Zara – The Benefits of Agile Procurement / Supply Chain,” June 21, 2018, https://www.ivalua.com/blog/supply-chain-management-
zara/
46 STRATEGIC USE OF INFORMATION RESOURCES

added by IS. Most notably, the customer is better served as a result of the systems. For example, the stores
place orders twice a week over mobile devices. Each night, managers use their devices to learn about
newly available garments. The orders are received and promptly processed and delivered. In this way, Zara
can be very timely in responding to customer preferences.
Unlike the five competitive forces model, which explores industry dynamics, the focus of the value
chain is on the firm’s activities as well as value chains of other firms in its supply chain. Yet, using the
value chain as a lens for understanding strategic use of information resources affects competitive forces
because technology innovations add value to suppliers, customers, or even competitors and potential new
entrants.

Sustaining Competitive Advantage

It might seem obvious that a firm would try to sustain its competitive advantage. After all, the firm might
have worked very hard to create advantages, such as those previously discussed. However, there is some
controversy about trying to sustain a competitive advantage.
On one side are those who warn of hypercompetition as discussed in Chapter 1.14 In an industry facing
hypercompetition, recall that trying to sustain an advantage can be a deadly distraction. Consider the bank-
ing industry as a good example that has undergone much change over the past five decades. In the 1960s,
people needed to visit a physical bank during business hours for all transactions, including withdrawing
from or depositing to their accounts and transferring among accounts. In the 1970s, some banks took a
chance and invested in 24-hour automated teller machines (ATMs) and were among the innovators in the
industry. In the 1980s, some banks pioneered “bank-by-phone” services that enabled customers to pay
bills by phone, attempting to establish competitive advantage with technology. In the late 1990s, websites
served to augment banking services, and “bank-by-web” was the new, exciting way to compete. Most
recently, many banks are providing mobile banking, enabling customers to make deposits by using their
smartphone camera to take photos of checks that previously needed to be turned in physically. Then the
checks can be destroyed.
The obvious picture to paint here is that competitors caught up with the leaders very quickly, and
competitive advantage was brief. When ATMs were introduced, it did not take long for others to adopt the
same technology. Even small banks found that they could band together with competitors and invest in
the same technologies. The same imitation game took place with “bank-by-phone,” “bank-by-web,” and
mobile banking.
More interestingly, what sounds like an exciting way to show off the power of technology and gain a
competitive advantage over the short run can also be interpreted as a way to increase the cost of doing
business for everyone in the long run. Although some investments, such as using ATMs to replace tellers,
lowered costs, other investments raised costs (such as needing to offer phone, web, and mobile banking
options to customers in addition to their in-person services). The sustainability of the high-tech strategy
is being put to the test at small community banks. A recent front-page article on the Wall Street Journal
proclaims “Small-Town Banks Crippled by High-Tech Costs.” The article goes on to say that these banks
are “struggling to fund the ballooning tab” and that the percentage of small community banks in the United
States has shrunk to a fifth of what it was three decades ago.15
Rather than arguing that sustaining a competitive advantage is a deadly distraction, Piccoli and Ives16
provided a framework that outlines the ways in which a firm can provide barriers to competitors, which
would build sustainability. The framework outlines four types of barriers: IT project barrier, IT resources
and capabilities barrier, complementary resources barrier, and preemption barrier. See Figure 2.8 for a
brief definition and a few examples of each.

14
Don Goeltz, “Hypercompetition,” vol. 1 of The Encyclopedia of Management Theory, ed. Eric Kessler (Los Angeles, CA: Sage, 2013),
359–60.
15
Rachel Louise Ensign and Coulter Jones, “Small-Town Banks Crippled by High Tech Costs,” Wall Street Journal, March 2–3, 2019,
A1, A10.
16
Piccoli and Ives, “IT-Dependent Strategic Initiatives and Sustained Competitive Advantage,” 755.
 Sustaining Competitive Advantage 47

Barrier Definition Examples

IT Project Barrier It would be a large undertaking for a competitor to • Requires a large investment
build the system to copy the capability. • Requires a long time to build
• Complicated to build

IT Assets and Competitors might lack the IT resources to copy • Database of customers that cannot be copied
Capabilities Barrier the capability. • Expert developers or project managers

Complementary The firm has other resources that create a synergy • Respected brand
Resources Barrier with the IT that provides competitive advantage.
• Partnership agreements
• Exclusivity arrangements
• Good location

Preemption Barrier The firm “got there first.” • Loyal customer base built at the beginning
• Firm known as “the” source

FIGURE 2.8 Barriers to competition and building sustainability.

So, should a firm focus attention on building barriers to the competition, or should it just give up on the
established competitive advantage and focus on seeking a way to start the next revolution? Given that some
technologies can be copied quickly, or even just purchased from the same well-known vendor who sup-
plied it to the leader in the first place, it seems prudent to spend some time to explore each technological
option in the Piccoli and Ives’ framework and determine where the firm can increase sustainability. If the
project is rather small, then the firm should focus on the other three barriers. If the firm can build loyalty
with customers who appreciate innovation, a two-month competitive advantage might turn into a two-year
or longer advantage, thus building a valuable preemption barrier that could sustain them well toward mak-
ing the next innovation. If a firm can capture valuable data right at the beginning, a copycat firm may fall
further behind. Also, building partnerships or securing exclusive rights to some of the technologies can
further delay a competitor from catching up.
It would not be wise to stop there, however. The firm should continue to seek ways in which IT can
improve offerings or service to customers. And the firm should go beyond those steps, focusing on how it
might change its entire industry. One example is the way in which Netflix continued to speed its physical
DVD delivery service while focusing on movie streaming, a technology that is well on the way toward
making the delivery service obsolete. Netflix was more than aware that its revenue was falling every
quarter, but it expected and embraced the shortfall with its strategic move into streaming.17 Given that
other services such as Amazon and many cable companies had begun streaming, Netflix has created many
original series. Since its first hit House of Cards, Netflix has created dozens of series and has also branched
out into movie production.
One of the top movies in 2018 was Bird Box, which was widely reported to have broken records for
viewership. Netflix reports that the movie was watched by 80 million households in the first month.18 If
viewers were charged $10 per person, and an average of two people watched the movie per household,
Bird Box would approach $1.6 billion, which could have made it the highest-grossing film of all time. For
comparison purposes, Avatar (said to be the highest-earning film of all time19) earned $1.62 billion over
32 days, and the extra two days at the end of that period included a big $166 million weekend.20 Another of
Netflix’s movies that year was Roma, which according to the Wall Street Journal was “The Oscar Favorite
That Created an Existential Crisis in Hollywood.” Roma became a top contender for a “Best Movie” Oscar

17
Greg Sandoval, “Netflix CEO, DVD Subscribers to Decline Now and Forever,” CNET, http://www.cnet.com/news/netflix-ceo-dvd-
subscribers-to-decline-now-and-forever (accessed August 19, 2015).
18
BBC News, “Netflix Shows Bird Box and Elite Drive Subscriber Growth,” January 18, 2019, https://www.bbc.com/news/business-46912098
(accessed February 17, 2019).
19
Newsday.com, “The Biggest Box Office Hits of All Time,” August 24, 2018, https://www.newsday.com/entertainment/movies/the-biggest-
box-office-hits-of-all-time-1.5369007 (accessed February 18, 2019).
20
Brendan Bettinger, “AVATAR Reaches $500 Million in Only 32 Days; Worldwide Gross an Astounding $1.62 billion,” http://collider.com/
avatar-reaches-500-million-in-only-32-days-worldwide-gross-an-astounding-162-billion/ (accessed February 18, 2019).
48 STRATEGIC USE OF INFORMATION RESOURCES

and other awards when Netflix adopted the creative strategy of showing the TV movie in independent
theaters long enough to qualify for Oscar consideration.21
Gaining a reputation for excellence can provide a competitive advantage as a result of focusing on dif-
ferentiation. Netflix has shown that a firm can disrupt a market with a new idea. At the same time, it can
use all four barriers to build sustainability. It is expensive to produce and stream original content (project
barrier), they have the skills and experience to accomplish that task (resources barrier), they have the
infrastructure to stream (complementary resources barrier), and they receive publicity for their being early
in the market (preemption barrier). Disruption only happens intermittently while sustaining can bridge
between successive disruption events.
Therefore, a firm might simultaneously (1) seek ways to build sustainability by looking into each
of the four potential barriers to identify promising ways to block the competition, and at the same time
(2) continue to innovate and change the industry. Netflix has done both by building a dependable and
efficient mailing business and creating new business models such as streaming, series production, and
feature films. Focusing only on building sustainability has the potential effect of fighting a losing battle,
and focusing only on new business models might be too risky and striking gold too infrequent as the sole
source of growth. The last strategic framework, the resource-based view, is more general and emphasizes
ways in which to exploit its many potential resources. The framework, described next, can be helpful for
sustaining and creating competitive advantage.

Using the Resource-Based View (RBV)

A fourth framework, the resource-based view (RBV),22 is useful for determining whether a firm’s strategy
has created value by using IT. Like the value chain model, the RBV concentrates on areas that add value
to the firm. Whereas the value chain model focuses on a firm’s activities, the resource-based view focuses
on the resources that it can manage strategically in a rapidly changing competitive environment. Like the
Piccoli and Ives framework, the RBV focuses on sustaining competitive advantage but through the use of
resources rather than by raising competitive barriers.
The RBV has been applied in the area of IS to help identify two types of information resources: those that
enable a firm to attain competitive advantage and those that enable a firm to sustain the advantage over the
long term. From the IS perspective,23 some types of resources are better than others for creating attributes
that enable a firm to attain competitive advantage (i.e., value, rarity), whereas other resources are better
for creating attributes to sustain competitive value (e.g., low substitutability, low mobility, low imitability).

Resources to Attain Competitive Advantage

Valuable and rare resources that firms must leverage to establish a superior resource position help compa-
nies attain competitive advantage. A resource is considered valuable when it enables the firm to become
more efficient, effective, or innovative. It is a rare resource when other firms do not possess it. For exam-
ple, many banks today would not think of doing business without a mobile banking app. Mobile banking
apps are very valuable to the banks in terms of their operations. A bank’s customers expect it to provide
a mobile banking app that can be used on any mobile device. However, because many other banks also
have mobile banking apps, they are not a rare resource, and they do not offer a strategic advantage. Some
call them table stakes or resources required just to be in the business. Many systems in Eras I and II, and
especially Era III, were justified on their ability to provide a rare and valuable resource. In some cases,
these very systems have become table stakes.

21
Ben Fritz, “The Oscar Favorite That Created an Existential Crisis in Hollywood,” Wall Street Journal, February 22, 2019, https://www.wsj.
com/articles/the-oscar-favorite-that-created-an-existential-crisis-in-hollywood-11550849410?mod=searchresults&page=1&pos=6 (accessed
March 4, 2019).
22
The resource-based view was originally proposed by management researchers, most prominently Jay Barney, “Firm Resources and
Sustained Competitive Advantage,” Journal of Management 17, no. 1 (1991), 99–120 and “Is the Resource-Based ‘View’ a Useful Perspective
for Strategic Management Research? Yes,” Academy of Management Review 26, no. 1 (2001), 41–56 and M. Wade and J. Hulland, “Review:
The Resource-Based View and Information Systems Research: Review, Extension and Suggestions for Future Research,” MIS Quarterly 28,
no. 1 (2004), 107–42. This article reviewed the resource-based view’s application in the MIS literature and derived a framework to better
understand its application to IS resources.
23
M. Wade and J. Hulland, Ibid.
 Sustaining Competitive Advantage 49

Resources to Sustain Competitive Advantage

Many firms that invested in systems learned that gaining a competitive advantage does not automatically
mean that they could sustain it over the long term. The only way to do that is to continue to innovate and
to protect against resource imitation, substitution, or transfer. For example, Walmart’s complex logistics
management is deeply embedded in both its own and its suppliers’ operations so that imitations by other
firms are unlikely. The Oakland Athletics’ use of IS propelled it to victory, as depicted in the movie
Moneyball, but as soon as other teams learned about the secret behind the success Oakland was having
with analytics and IS, they, too began to use similar techniques, reducing the advantage Oakland initially
enjoyed. Finally, to sustain competitive advantage, resources must be difficult to transfer or replicate, or
relatively immobile. Some information resources can be easily bought. However, technical knowledge,
especially that which relates to a firm’s operation—an aggressive and opportunistic company culture, deep
relationships with customers, and managerial experience in the firm’s environment—is less easy to obtain
and, hence, considered harder to transfer to other firms.
Some IT management skills are general enough in nature to make them easier to transfer and imitate.
Although it clearly is important for IS executives to manage internally oriented resources such as IS infra-
structure, systems development, and running cost-effective IS operations, these skills can be acquired in
many different forms. They are basic IT management skills possessed by virtually all good IS managers.
Other skills, however, are unique to a firm and require considerable time and resources to develop. For
example, it takes time to learn how the firm operates and to understand its critical processes and socially
complex working relationships. However, the message suggested by the RBV is that IS executives must
look beyond their own IS shop and concentrate on cultivating resources that help the firm understand
changing business environments and allow it to work well with all its external stakeholders. Even when
considering internally oriented information resources, there are differences in the extent to which these
resources add value. Many argue that IS personnel are willing to move, especially when offered higher sal-
aries by firms needing these skills. Yet, some technical skills, such as knowledge of a firm’s use of technol-
ogy to support business processes and technology integration skills, are not easily exported to, or imported
from, another firm. Further, hardware and many software applications can be purchased or outsourced,
making them highly imitable and transferrable. Because it is unlikely that two firms have exactly the same
strategic alternatives, resources at one firm might have only moderate substitutability in the other firm.

Zara and RBV

Figure 2.9 indicates the extent to which the attributes of each information resource may add value to Zara,
the company discussed earlier in the chapter. Zara’s advantage did not come from the specific hardware
or software technologies it employed. Its management spent five to ten times less on technology than its
rivals. In contrast, Zara created considerable value from the other information asset—its valuable informa-
tion repository with customers’ preferences and body types.
In terms of information capability, much of Zara’s value creation is from its valuable and rare IT man-
agement skills. Zara’s relationship skills also serve as a tool for value creation and sustainability. Overall,
Zara is able to create high value from its IT management and relationship skills. It would be moderately to
extremely difficult to substitute, imitate, or transfer them.
The resource-based theory, although highly cited, has received its share of criticism.24 The major criti-
cism is that it doesn’t clearly distinguish between value and strategic competitive advantage. Another criti-
cism of the original theory is that it doesn’t consider different types of resources. However, IS researchers
addressed this concern when they categorized resources into assets and capabilities and then provided
examples of each. In applying the theory, it is important to recognize that it is focused on internal sources
of a firm’s competitive advantage and, thus, does not thoroughly take into account the environment in
which the firm is embedded, especially when the environment is quite dynamic.
Most firms don’t really have a choice of creating competitive advantage by manipulating industry
forces either through their use of information resources or IT-enhanced activities. Yet, like Zara, they can
leverage the IT resources they do have to create and sustain strategic value for their firms.

For an excellent discussion of criticisms of the resource-based view, see J. Kraaijenbrink, J-C. Spender, and A. J. Groen, “The Resource-
24

Based View: A Review and Assessment of Its Critiques,” Journal of Management, 36, no. 1 (2010), 349–72.
50 STRATEGIC USE OF INFORMATION RESOURCES

Value Creation Value Sustainability

Resource/Attribute Value Rarity Imitation Substitution Transfer
IT Asset

IT Infrastructure Moderate because of its skillful use of the POS Easy to imitate and transfer its infrastructure
equipment, handheld computers, automated Moderate for substitution of infrastructure
conveyors, and computer-controlled equipment (automated conveyers)
to cut patterns, but similar technology could be
purchased and used by competitors

Information Repository High value and rarity because of its information Difficult to imitate and transfer
about customers’ preferences and body types, Extremely difficult to substitute because of the
which Zara leverages strategically; well volume and nature of the data
integrated with Zara’s operations and personnel;
retail information analyzed by designers to
identify future products

IT Capability

Technical Skills Low value/rarity because IS professionals Moderately difficult to imitate, substitute, or
could be hired relatively easily to perform the transfer; some sustainability results because
technical work the skills are used to integrate across a range of
systems

IT Management Skills High value/rarity because they were acquired Difficult to imitate, substitute, or transfer;
over time resources leveraged well

Relationship Skills— High value from relationships with European Difficult to imitate, substitute, or transfer;
Externally Focused manufacturers turnaround time of under 5 weeks from conception
Moderate rarity because other companies also to distribution
have relationships with manufacturers although
required time to develop the relationship

Relationship Skills— High rarity of spanning Difficult to imitate, substitute, or transfer

Spanning spanning; unusual tight-knit teams at headquarters
not easy to imitate or purchase in the marketplace,
allowing the ability to correctly interpret and
quickly respond to customer needs

FIGURE 2.9 Information resources at Zara, by attribute.

Source: Based on M. Wade and J. Hulland, “The Resource-Based View and Information Systems Research: Review, Extension and Suggestions for
Future Research,” MIS Quarterly 28, no. 1 (2004), 107–42.

Social Capital
A management theory that is gaining in popularity as a tool in understanding a social business is social
capital theory.25 Social capital is the sum of the actual and potential resources embedded within, available
through, and derived from the network of relationships possessed by an individual or social unit. Relation-
ships associated with networks have the potential of being a valuable resource for businesses. The theory’s
focus is not on managing individuals but on managing relationships.
The value from networks may be derived in one of three interrelated ways: structural, relational, and
cognitive. The structural dimension is concerned with the pattern of relationships in the network—who
is connected to whom. The relational dimension looks at the nature of relationships among members in
the network (i.e., respect, friendship)—how the connected people interact. The third cognitive dimension
looks at the way people think about things in the network, in particular whether they have a shared lan-
guage, system of meanings or interpretations—how the connected people think. The unusual thing about
social capital is that no one person owns it. Rather, the people in the relationship own it jointly. Thus, it
can’t be traded easily, but it can be used to do certain things more easily. In particular, in social business
applications, social capital may make it easier to get the information needed to perform a task or connect

25
J. Nahapiet and S. Ghosal, “Social Capital, Intellectual Capital and the Organizational Value,” Academy of Management Review, 23, no. 2
(1998), 242–66.
 Strategic Alliances 51

with certain key people. In IS development teams, social capital may improve the willingness and ability
of team members to coordinate their tasks in completing a project.

Strategic Alliances
The value chain helps a firm focus on adding value to the areas of most value to its partners. The resource-
based view suggests adding value using externally oriented relationship skills. The Eras framework
emphasizes the importance of collaborative partnerships and relationships. The increasing number of web
applications focused on collaboration and social networking only foreshadow even more emphasis on alli-
ances. These relationships can take many forms, including joint ventures, joint projects, trade associations,
buyer–supplier partnerships, or cartels. Often such partnerships use information technologies to support
strategic alliances and integrate data across partners’ IS. A strategic alliance is an interorganizational
relationship that affords one or more companies in the relationship a strategic advantage.
An example is the strategic alliance between game maker Zynga and Facebook. As documented in
Facebook’s IPO filing in January 2012, the relationship was a mutually beneficial one. Zynga developed
some of the most popular games found on Facebook, including Mafia Wars, Farmville, and WordsWith-
Friends. Facebook has exclusive rights to Zynga’s games, many of which have generated thousands of new
members for Facebook. It has also gained access to Zynga’s customer database. The alliance generates
significant revenue for both parties because players of these games purchase virtual goods with real money
and Zynga purchases significant advertising space from Facebook to promote its games. Just as Facebook
makes Zynga possible, Zynga benefits its Facebook community.26

Business Ecosystems
A business ecosystem is a group of strategic alliances in which a number of partners provide important
services to each other and jointly create value for customers. The Facebook ecosystem could be said to
include many of the companies that use that platform to deliver their apps, that allow customers to post
directly on their Facebook page from the app, or that allow customers to log on to their site using their
Facebook account. This adds value for customers by providing greater convenience, and by offering the
ability to automatically update their activity stream with information from the app. Both Facebook and
the app provider benefit from their alliance. Facebook’s ecosystem also includes those companies that
buy the data Facebook harvests from its customers’ use.
IS often provide the platform upon which a strategic alliance functions. Technology can help produce
the product developed by the alliance, share information resources across the partners’ existing value sys-
tems, or facilitate communication and coordination among the partners. Because many services are infor-
mation based today, an IS platform is used to deliver these services to customers. The Facebook–Zynga
alliance is an example of this type of IS platform. Further, linking value chains through SCM is another
way that firms build an IT-facilitated strategic alliance.

Co-opetition
Clearly, not all strategic alliances are formed with suppliers or customers as partners. Rather, co-opetition
is an increasingly popular alternative model. As defined by Brandenburg and Nalebuff in their book of the
same name, co-opetition is a strategy whereby companies cooperate and compete at the same time with
companies in their value net.27 The value net includes a company and its competitors and complementors

26
Adapted from N. Wingfield, “Virtual Products, Real Profits,” The Wall Street Journal, September 9, 2011, A1, 16; L. B. Baker, “Zynga’s
Sales Soar on Facebook Connection,” Reuters News, February 2, 2012, http://www.reuters.com/article/2012/02/02/us-zynga-shares-
idUSTRE8111PO20120202 (accessed September 14, 2015); and Jackie Cohen, “So Much for the Facebook Effect: Zynga Sees $978.6 Million
Loss in 2011,” Yahoo News, February 14, 2012, http://www.allfacebook.com/facebook-zynga-eps-2012-02 (accessed February 20, 2012).
27
A. Brandenburg and B. Nalebuff, Co-opetition (New York: Doubleday, 1996).
52 STRATEGIC USE OF INFORMATION RESOURCES

as well as its customers and suppliers and the interactions among all of them. A complementor is a com-
pany whose product or service is used in conjunction with a particular product or service to make a more
useful set for the customer. For example, Goodyear is a complementor to Ford and GM because tires are
a complementary product to vehicles. Likewise, Amazon is a complementor to Apple in part because the
Amazon reading application, the Kindle is one of the most popular apps for the iPad. Finally, a cellular
service is a complementor to Google’s search engine because the service allows more consumers to use
Google’s search function.
Co-opetition, then, is the strategy for creating the best possible outcome for a business by optimally
combining competition and cooperation. It can also be used as a strategy for sourcing as discussed in
Chapter 10. It frequently creates competitive advantage by giving power in the form of information to other
organizations or groups. For example, Covisint.com was created to host the auto industry’s e-marketplace,
which grew out of a consortium of competitors, including General Motors, Ford, DaimlerChrysler,
Nissan, and Renault. By addressing multiple automotive functional needs across the entire product life
cycle, Covisint offered support for collaboration, SCM, procurement, and quality management. Covisint.
com extended this business-to-partner platform to other industries including health care, manufacturing,
life sciences, food and beverage, and oil and gas. Thus, co-opetition as demonstrated by Covisint not
only streamlines the internal operations of its backers but also has the potential to transform an industry.
Covisint has changed its mission since its founding,28 but such a system has forever made competitors
realize that they could gain mutual advantage through cooperation.

Risks
As demonstrated throughout this chapter, information resources may be used to gain strategic advantage
even if that advantage is fleeting. When IS are chosen as a tool to outpace a firm’s competitors, executives
should be aware of the many risks that may surface. Some of these risks include the following:
• Awakening a sleeping giant: A firm can implement IS to gain competitive advantage only to find that
it nudged a larger competitor with deeper pockets into implementing an IS with even better features.
FedEx offered its customers the ability to trace the transit and delivery of their packages online. FedEx’s
much larger competitor, UPS, rose to the challenge. UPS not only implemented the same services but
also added a new set of features eroding some of the advantages FedEx enjoyed, causing FedEx to
update its offerings. Both the UPS and FedEx sites passed through multiple website iterations as the
dueling delivery companies continue to struggle for competitive advantage.
• Demonstrating bad timing: Sometimes customers are not ready to use the technology designed to gain
strategic advantage. For example, Grid Systems created the GRiDPAD in 1989. It was a tablet computer
designed for businesses to use in the field and was well reviewed at that time. But it didn’t get traction.
Three decades later, in 2010, Apple introduced the iPad, and tablet computing took off.
• Implementing IS poorly: Stories abound of IS that fail because they are poorly implemented.
Typically, these systems are complex and often global in their reach. An implementation fiasco took
place at Hershey Foods when it attempted to implement its supply and inventory system. Hershey
developers brought the complex system up too quickly and then failed to test it adequately. Related
systems problems crippled shipments during the critical Halloween shopping season, resulting in
large declines in sales and net income. More recently, more than 100,000 Austin Energy customers
received incorrect utility bills due to problems with the company’s vendor-supplied bill collection
system. Some customers went months without a bill, and others were incorrectly billed. Some busi-
nesses that owed $3,000 were billed $300,000. Still others tried to pay their bill online only to be
told that the payment had not recorded when it had been. The utility calculated that the problems
cost it more than $8 million.29

28
Joann Muller, “Covisint Didn’t Die; It Just Went to the Cloud,” Forbes.com, June 27, 2012, https://www.forbes.com/sites/joannmuller/
2012/06/27/covisint-detroits-failed-internet-venture-is-alive-and-well-and-about-to-go-public/#8cd24a737acb (accessed March 6, 2019).
29
Marty Toohey, “More Than 100,000 Austin Energy Customers Hit by Billing Errors from $55 Million IBM System,” Statesman,
February 18, 2012, http://www.statesman.com/news/local/more-than-100-000-austin-energy-customers-hit-2185031.html (accessed
February 20, 2012).
 Co-Creating IT and Business Strategy 53

• Failing to deliver what users want: Systems that do not meet the needs of the firm’s target market
are likely to fail. For example, in 2011, Netflix leadership divided the company into two, calling the
DVD-rental business Qwikster and keeping the streaming business under Netflix. But customers com-
plained, and worse, closed their accounts. Less than a month later, Qwikster was gone. Netflix reunited
both businesses under the Netflix name.30
• Running afoul of the law: Using IS strategically may promote litigation if the IS result in the violation
of laws or regulations. Years ago, American Airlines’ reservation system, Sabre, was challenged by the
airline’s competitors on the grounds that it violated antitrust laws. More recently, in 2010, Google said it
was no longer willing to adhere to Chinese censorship. The Chinese government responded by banning
searching via all Google search sites (not only google.cn but all language versions, e.g., google.co.jp.
google.com.au), including Google Mobile. Google then created an automatic redirect to Google Hong
Kong, which stopped June 30, 2010, so that Google would not lose its license to operate in China. Today,
Google is acting in compliance with the Chinese government’s censorship laws and Chinese users of
Google.cn see filtered results as before. Later, in 2019, the discovery of a secret “Dragonfly” project, a
mobile search engine for the Chinese market that complies with China’s censorship laws, has resulted
in resistance by Google employees.31 Finally, European antitrust officials claimed that Google’s search
engine unfairly generates results that favor its shopping sites over those of its competitors and that its
Android mobile phone operating system unfairly features Google as the default search engine.32
Every business decision has risks associated with it. However, with the large expenditure of IT resources
needed to create sustainable, strategic advantages, the manager should carefully identify and then design
a mitigation strategy to manage the associated risks.

A Closer Look: Mobile-Only Internet Users Dominate

Emerging Countries
In many emerging markets, people connect to the Internet solely through mobile devices. In Febru-
ary 2017, mobile devices accounted for 49.7% of web page views globally, with Asian and African
countries leading the pack. Kenya reported the highest rate of Internet usage accessed from mobile
devices, followed by Nigeria, India, Singapore, Ghana, and Indonesia.i Malaysia took the lead as
a test case for a mobile-only Internet. It has rolled out a next-generation, high-speed broadband
network that covers most of its population. This infrastructure makes it possible to make video calls
with Apple’s FaceTime application in locations throughout the country using a tiny pocket router
that accesses a WiMAX wireless-broadband network set up by a local conglomerate, YTL Corp.
Bhd. To further encourage the spread of the Internet, Malaysia’s leaders have pledged not to censor
the Internet.
Sources: G. Dunaway, “Mobile-Only Internet Users Dominate Emerging Markets,” Adotas.com, October 24, 2011,
http://www.adotas.com/201w1/10/mobile-only-internet-users-dominate-emerging-markets/ (accessed August 19,
2015); J. Hookway, “Broadband in the Tropics,” The Wall Street Journal, September 21, 2011, B6.
Statistica, “Mobile Internet - Statistics and Facts,” https://www.statista.com/topics/779/mobile-internet/ (accessed
i

March 4, 2019).

Co-Creating IT and Business Strategy

This chapter has discussed the alignment of IT strategy with business strategy. Certainly, the two strat-
egies must be carefully choreographed to ensure receiving maximum value from IT investments and
obtaining the maximum opportunity to achieve the business strategy. However, in the fast-paced business

30
Qwikster = Gonester, October 10, 2011, http://www.breakingcopy.com/netflix-kills-qwikster (accessed February 20, 2012).
31
Kate Conger and Daisuke Wakabayashi, “Google Employees Protest Secret Work on Censored Search Engine for China,” The New York
Times, August 16, 2018, https://www.nytimes.com/2018/08/16/technology/google-employees-protest-search-censored-china.html?hp&
action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news
(accessed March 2, 2019).
32
“Viewed as a Monopoly in Europe, Google Takes on Role as a Wireless Trust-Buster in U.S.,” The New York Times, May 8, 2015, B1, B6.
54 STRATEGIC USE OF INFORMATION RESOURCES

environment where information is increasingly a core component of the product or service offered by the
firm, managers must co-create IT and business strategy. That is to say that IT strategy is business strategy;
one cannot be created independently of the other. In many cases, they are now one in the same.
For companies whose main product is information, such as financial services companies, it’s clear that infor-
mation management is the core of the business strategy itself. How an investment firm manages the clients’
accounts, how its clients interact with the company, and how investments are made are all done through the
management of information. A financial services company must co-create business and IT strategy.
But consider a company such as FedEx, most well known as the package delivery company. Are cus-
tomers paying to have a package delivered or to have information about that package’s delivery route and
timetable? One could argue that they are one and the same, and that increasingly the company’s business
strategy is its IS strategy. Certainly, there are components of the operation that are more than just infor-
mation. There are physical packages to be loaded on actual trucks and planes, which are then flown and/
or driven to their destinations. However, to make it all work, the company must rely on IS. Should the IS
stop working or have a serious failure, FedEx would be unable to do business. A company like this must
co-create IT strategy and business strategy.
This was not true a few years ago. Companies could often separate IS strategy from business strategy
in part because their products or services did not have a large information component. For example, a few
years ago, should the IS of a trucking company stop working, the trucks would still be able to take their
shipments to their destination and pick up new ones. It might be slower or a bit more chaotic, but the busi-
ness wouldn’t stop. Today, that’s not the case. Complicated logistics are the norm, and IS are the founda-
tion of the business as seen at FedEx.
With the increasing number of IS applications on the web and on mobile devices, firms increasingly
need to co-create business and IT strategy. Managers who think they can build a business model without
considering the opportunities and impact of IS, using both the resources owned by the firm and those
available on the web, will find they have significant difficulties creating business opportunities as well as
sustainable advantage in their marketplace.

SUMMARY

• Information resources include data, technology, people, and processes within an organization. Informa-
tion resources can be either assets or capabilities.
• IT infrastructure and information repositories are IT assets. Three major categories of IT capabilities are
technical skills, IT management skills, and relationship skills.
• Using IS for strategic advantage requires an awareness of the many relationships that affect both com-
petitive business and information strategies.
• The ve competitive forces model implies that more than just the local competitors in uence the reality
of the business situation. Analyzing the ve competitive forces—threat of new entrants, buyers’ bargain-
ing power, suppliers’ bargaining power, industry competitors, and threat of substitute products—from
both a business view and an IS view helps general managers use information resources to minimize the
effect of these forces on the organization.
• The value chain highlights how IS add value to the primary and support activities of a rm’s internal
operations as well as to the activities of its customers and of other components of its supply chain.
• The resource-based view (RBV) helps a rm understand the value created by its strategy. RBV main-
tains that competitive advantage comes from a rm’s information resources. Resources enable a rm to
attain and sustain competitive advantage.
• IT can facilitate strategic alliances. Ecosystems are groups of strategic alliances working together to
deliver goods and services. SCM is a mechanism that may be used for creating strategic alliances.
• Co-opetition is the complex arrangement through which companies cooperate and compete at the same
time with other companies in their value net.
• Numerous risks are associated with using IS to gain strategic advantage: awaking a sleeping giant,
demonstrating bad timing, implementing poorly, failing to deliver what customers want, and running
afoul of the law.
 Discussion Questions 55

KEY TERMS

business ecosystems, 37 information resources, 38 social capital, 50

co-opetition, 51 IT asset, 38 strategic alliance, 51
customer relationship IT capability, 38 supply chain management
management (CRM), 44 network effects, 38 (SCM), 44
enterprise resource resource-based view
planning (ERP), 44 (RBV), 48

DISCUSSION QUESTIONS

1. How can information itself provide a competitive advantage to an organization? Give two or three
examples. For each example, describe its associated risks.
2. Use the five competitive forces model as described in this chapter to describe how information technol-
ogy might be used to provide a winning position for each of these businesses:
a. A global advertising agency
b. A local restaurant
c. A mobile applications provider
d. An insurance company
e. A web-based audio book service
3. Using the value chain model, describe how information technology might be used to provide a winning
position for each of these businesses:
a. A global advertising agency
b. A local restaurant
c. A mobile applications provider
d. An insurance company
e. A web-based audio book service
4. Use the resource-based view as described in this chapter to describe how information technology might
be used to provide and sustain a winning position for each of these businesses:
a. A global advertising agency
b. A local restaurant
c. A mobile applications provider
d. An insurance company
e. A web-based audio book service
5. Some claim that the only sustainable competitive advantage for an organization is its relation-
ships with its customers. All other advantages eventually erode. Do you agree or disagree?
How can IS play a role in maintaining the organization’s relationship with its customers? Defend
your position.
6. Cisco Systems has a network of component suppliers, distributors, and contract manufacturers
that are linked through Cisco’s extranet. When a customer orders a Cisco product at its website,
the order triggers contracts to manufacturers of printed circuit board assemblies when appropriate
and alerts distributors and component suppliers. Cisco’s contract manufacturers are aware of the
order because they can log on to its extranet and link with Cisco’s own manufacturing execution
systems. What are the advantages of Cisco’s strategic alliances? What are the risks to Cisco? To
the suppliers?
56 STRATEGIC USE OF INFORMATION RESOURCES

Case Study 2-1 Amazon Go: How Far Can It Go?

Amazon has many lines of business in its bid to be the largest and most customer-centric company.
One unexpected area in which it has publicized a new vision is in-store shopping.
On January 22, 2018, Amazon announced a new concept in physical shopping, called “Amazon
Go.” In short, imagine walking into a convenience store after identifying yourself using an app just
like those at the airport scanning a bar code on their mobile device instead of a paper boarding pass.
As you walk through the store, you take items from the shelf, put some back after looking them over,
put some in your basket, and even return some to the shelf from your basket after finding a more
desirable item elsewhere in the store. Then you put everything in your bag, your pockets, or your
mouth, and then leave the store without stopping by any cash registers. The receipt can be found in
the app.
This feat is accomplished with the help of hundreds of cameras pointing down from the ceiling
that carefully watch you, your items, and your basket all the while you are in the store. Weight sen-
sors and shelf cameras reveal products removed or replaced. The monitoring process is managed
by image recognition, artificial intelligence, and machine learning. A 3-D representation of each
customer is built and tracked. Amazon assures us that after the checkout process is complete, nearly
all of the data are discarded.
Shoplifting is virtually impossible with such technology, Amazon states. Matt McFarland, a CNN
reporter, tried in vain to fool the system for almost an hour, by pointing closely at items, covering
up scanning symbols used by the cameras scanners, and grabbing products from behind his back.
Amazon told him that errors are highly infrequent.
Of course, a major benefit includes reducing or eliminating the need to hire cashiers. McFarland
reported that there is no research to suggest whether the personnel savings will cover losses in sales
of convenience items strategically placed near the cash register while customers wait several min-
utes in line, or for a potential loss in “social proof;” that a long line signals that the store must be
pretty great. However, there could be other new opportunities to upsell and cross-sell customers. The
AI, through the app, can suggest complementary goods such as side dishes, special deals on foods
that the customer tends to buy often, and new items that are likely to be desirable to that particular
customer. A physical store cannot do this without a shopping concierge who knows you in detail
and follows you around. This is analogous to the Amazon.com site that suggests other products that
you might like. Future market researchers are likely to investigate whether sales of items that are
meaningful to a customer thanks to AI and past shopping behavior will fall short or exceed sales of
waiting-line convenience items such as gum, magazines, or candy bars.
The future indeed seems to hold many opportunities for the concept. Amazon has secured
patents for several technologies used to enable the stores to operate, and Amazon is planning to
open 3,000 of these stores in the United States. However, Jim Kenney, Mayor of Philadelphia,
signed off on a bill passed by city council by a wide margin to ban cashless stores. That bill would
essentially prevent Amazon Go from operating in the city that is plagued by a 25% poverty rate.
The purpose is to avoid limiting access to low-income customers. Other cities might take a note
of such a move and follow suit. Amazon later acquiesced and agreed to accept cash in its Amazon
Go stores after all.

Sources: Adapted from Matt McFarland, “I Spent 53 Minutes in Amazon Go and Saw the Future of Retail,” CNN
Business, October 3, 2018, https://www.cnn.com/2018/10/03/tech/amazon-go/index.html (accessed February 20,
2019); “Introducing Amazon Go and the World’s Most Advanced Shopping Technology,” December 5, 2016, https://
www.youtube.com/watch?v=NrmMk1Myrxc (accessed February 20, 2019); Alan Boyle, “Fresh Patents Served Up
for the Smart Shelf Technologies Seen in Amazon Go Stores,” September 4, 2018, https://www.geekwire.com/2018/
fresh-patents-served-smart-shelf-technologies-seen-amazon-go-stores/ (accessed February 20, 2018); Christian Het-
rick, “Amazon Warns It May Rethink Plans to Open a Philly Store If the City Bans Cashless Retailers,” Philly.com,
February 15, 2019, https://www.philly.com/business/retail/amazon-go-philadelphia-cashless-store-ban-20190215.
html (accessed February 20, 2019); Christian Hetrick, “Philadelphia Passes Ban on Cashless Stores; Amazon Go
Plans Said to Be in Jeopardy,” The Morning Call (March 4, 2019), https://www.mcall.com/news/nationworld/penn-
sylvania/mc-nws-philadelphia-cashless-stores-bill-20190304-story.html (accessed March 6, 2019); and “Amazon
Says Go Stores Will Soon Accept Cash, One Month After Philly Passes Cashless Store Ban,” Phillyvoice.com, April
10, 2019, https://www.phillyvoice.com/amazon-go-accept-cash-cashless-store-ban-philly/ (accessed June 23, 2019).
 Discussion Questions 57

Case Study 2-1 (Continued)

Discussion Questions
1. Assess the time savings of not having to cope with a line in a convenience store. How would it
impact your life? Stated another way, does Amazon Go have a genuine competitive advantage, or
is it simply a gimmick that will likely fade after it loses its novelty? If it has a genuine competitive
advantage, which of the three types described in Chapter 1 does it represent?
2. Describe how Amazon Go is positioned (or not positioned) to resist each of the Five Forces.
3. Which of the four sustainability factors are positioned to help Amazon Go? Describe how.
4. Consider the world in twenty years. Argue (a) for and (b) against the proposition that most stores
will be just like Amazon Go.
5. Are there opportunities for improving the efficiency of the value chain of a typical retail store?
6. How closely aligned are the business strategy and IT strategy for Amazon Go? Support your
answer.
7. Several risks of rolling out technologies that yield a competitive advantage are identified in the
chapter. Which of these risks do you believe should be of greatest concern for Amazon Go?
8. If you were the CEO of Amazon, to what extent would you expand Amazon Go? In your answer,
consider the positioning of Amazon’s Whole Foods chain.
9. Amazon has made it profitable to adopt a two-sided platform, where third-party vendors can also
sell on Amazon, and where Amazon receives a commission on every sale. If Amazon Go decided
to license the enabling technologies to firms such as Walmart and Target, do you believe the net
impact would be positive or negative to Amazon Go? Why?

Case Study 2-2 Groupon

Groupon, Inc. raised $700 million at its IPO in the fall of 2011, instantly providing a valuation of
almost $13 billion for a company that was only three years old at the time. Some question the value,
claiming Groupon has no sustainable competitive advantage. Others see Groupon as an innovative
company with high potential.
Groupon sells Internet coupons for events, services, and other popular items that customers might
want to buy. Customers sign up for daily e-mails targeted to their local market. The daily deal,
offered for one-day only and only if a predetermined minimum number of customers buy it, gives
customers 50% off the “retail” price. For example, a $100 three-month health club membership
would sell for $50 on Groupon. The customer pays $50 to Groupon and prints a certificate to redeem
at the health club. Groupon keeps 50% of the revenue, or $25 in this case, and gives the rest to the
health club. Effectively, retailers are offering 75% off with the customer saving 50% and Groupon
taking the rest.
Groupon pays the retailer when the coupon is redeemed, making money both on the float between
the time revenue is collected and the time the retailer is paid and on the certificates that are never
redeemed at all, which the industry calls breakage. Retailers make money in the long run by intro-
ducing customers to their products, selling them additional products and services when they come in
to redeem their coupons, and turning them into repeat customers. And retailers benefit from the buzz
created when their business is on Groupon.
In August 2010, Groupon launched its first national deal, a coupon worth $50 of Gap apparel and
accessories for $25. It sold over 440,000 coupons, netting Groupon and the Gap close to $11 million.
But not all vendors are the size of the Gap, and smaller vendors have been overwhelmed with too
many coupons. One local business owner said the company lost $8,000 on its Groupon promotion
when too many coupons were issued. In fact, a study of 150 retailers showed that only 66% found
their deals profitable.
58 STRATEGIC USE OF INFORMATION RESOURCES

Case Study 2-2 (Continued)

Around the time of the IPO, analysts and observers alike claimed that Groupon’s business model
was not sustainable. In addition to the large number of retailers who found their deals unprofitable,
observers noted that Groupon does not produce anything of value, and it isn’t adding value to the
retailers. Further, there are no barriers to entry to stop competitors. In May 2011, more than 450
competitors offering discounts and deals included LivingSocial, another daily deal site; restaurant.
com, a site for restaurant gift certificates at a deep discount; and overstock.com and woot.com, sites
offering discounted merchandise, not to mention deep-pocketed competitors like Amazon.com.
But Groupon added to its business strategy with mobile capability and new services. In February
2012, it purchased Kima Labs, a mobile payment specialist, and Hyperpublic, a company that builds
databases of local information. CEO Andrew Mason saw significant growth potential in providing
new features to help customers personalize offers and avoid deals they don’t want. In May 2011, in
a few cities, the company launched Groupon Now, a time-based local application that gives custom-
ers instant deals at merchants nearby using location-based software, then in 2013 it integrated the
functionality into its main platform. Groupon seems to have done something right. As of the third
quarter of 2018, it had worked with over one million merchants and sold nearly 1.5 billion Groupon
coupons; it operates in 15 countries and 500 markets. Its app is the third most downloaded retail app
in the United States and is the sixth most popular iOS app of all time.

Sources: Adapted from http://mashable.com/2010/08/19/gap-groupon/ (accessed February 21, 2012); http://

www.forbes.com/sites/petercohan/2011/06/06/memo-to-sec-groupon-has-no-competitive-advantage-stop-its-ipo/
(accessed February 21, 2012); http://blogs.wsj.com/venturecapital/2010/09/29/rice-university-study-groupon-
renewal-rate-not-so-hot/ (accessed February 21, 2012); http://articles.chicagotribune.com/2011-05-18/business/
ct-biz-0519-groupon-now-20110518_1_groupon-chief-executive-andrew-mason- rst-phase (accessed February 21,
2012); http://www.reuters.com/article/2012/02/09/us-groupon-idUSTRE81727B20120209 (accessed February 21,
2012); Groupon fact sheet, https://s24173.pcdn.co/wp-content/uploads/2018/12/Q3-2018-Groupon-Fact-Sheet.pdf
(accessed March 4, 2019); and Navendu Chandra, “Whatever Happened to Groupon Now? Did It Get Pulled or
Are They Iterating?” Quora, April 17, 2013, https://www.quora.com/Whatever-happened-to-Groupon-Now-Did-it-
get-pulled-or-are-they-iterating (accessed March 6, 2019).

Discussion Questions
1. How does information technology help Groupon compete?
2. Do you agree or disagree with the statement that “Groupon has no sustainable competitive advan-
tage”? Please explain your point of view.
3. How does Groupon add value to the companies whose offers are sold on the site?
4. Why do you believe Groupon Now was integrated into the main Groupon site? Explain whether
you think that it was a success or a failure, and why.
5. What would you advise Groupon leaders to consider as their next application?
6. Analyze the business model of Groupon using Porter’s five forces model.
 3
Organizational Strategy and
Information Systems

In order for information systems (IS) to support an organization in achieving its goals, the
organization must reflect the business strategy and be coordinated with the organizational strategy.
This chapter focuses on linking and coordinating the IS strategy with the three components of
organizational strategy:
• Organizational design (decision rights, formal reporting relationships and structure, informal
networks)
• Management control systems (planning, data collection, performance measurement,
evaluation, incentives, and rewards)
• Internal culture (values, locus of control)

After over 20 years of fast growth, in 2017, Cognizant Technology Solutions was a company with $14.81
billion in revenues from providing IS outsourcing services.1 However, growing at such a breakneck speed,
it had to reinvent its organizational structure many times to make sure that it facilitated the flow of infor-
mation. Initially, its India-centric structure located managers of each group in India along with software
engineers. Employees at customer locations worldwide reported to the managers. As the company grew
and its focus shifted from simple, cost-based solutions to complex, relationship-based solutions, this struc-
ture had to be changed to be more customer oriented. Under the redesigned reporting structure, manag-
ers were moved to customer locations, but software engineers remained in India. This change improved
customer relations but brought about new headaches on the technical side. Under the new arrangement,
managers had to spend their days with customers and unexpectedly ended up spending their nights with
software engineers to clarify customer requirements and fix bugs. This created a tremendous strain on
managers, who threatened to quit. It also hampered the company’s business of systems development. Thus,
neither of these organizational structures was working well. Neither structure was well aligned with the
business strategy and the IS strategy.
However, Cognizant found that despite these problems, some work teams were working and perform-
ing well. Upon an extensive analysis of those groups, the company decided to adopt a matrix structure of
comanagement throughout the company. In this matrix structure, each project has two managers equally
responsible for the project in a location. One manager is in India and the other is at the client site. They
work out among themselves how and when to deal with issues. And both managers are equally responsible
for customer satisfaction, project deadlines, and group revenue. The new structure (Figure 3.1) enables
Cognizant to work more closely with its clients to focus on improving operations. That is, the new matrix
structure makes it possible to build IS that the customers wanted.
However, matrix organizations have their downside, as noted by one disgruntled employee who claims
that the functional manager: “most of the time doesn’t know what you are working on but still evaluates

1
https://investors.cognizant.com/2018-02-07-Cognizant-Reports-Fourth-Quarter-And-Full-Year-2017-Results (accessed February 17, 2019).

59
60 ORGANIZATIONAL STRATEGY AND INFORMATION SYSTEMS

CEO

Vertical Functions
Telecommunication
Software Engineer Database Manager
Specialist

Horizontal Functions Business Manager

Customer 1 USA

Business Manager
Customer 2 UK

Business Manager
Customer 3 China

FIGURE 3.1 Example of possible cognizant matrix structure.

Source: Adapted from “The Issue: For Cognizant, Two’s Company,” Businessweek, January 17, 2008, http://www.bloomberg.com/bw/stories/
2008-01-17/the-issue-for-cognizant-twos-companybusinessweek-business-news-stock-market-and-financial-advice (accessed August 20, 2015).

your performance, and then the project manager/lead who closely works with you but can’t assess you
[because] you don’t report to him. It’s [a] complicated structure and can get you [ticked] off.”2
During the same time period in 2008, the largest outsourcing company and software exporter in India,
Tata Consultancy Services (TCS), also found that the growth led to problems. “As we scale up over
100,000 employees, TCS needs a structure that allows us to build a nimble organization to capture new
growth opportunities,” said then TCS CEO and Managing Director S. Ramadorai.3 TCS broke its business
into industry structure units (ISUs).
Growth led to a high volume of issues that needed the attention of the CEO and COO, and eventually it
was difficult to keep up. At the same time, there was a need to spend significantly more time investigating
new potential markets and new strategic initiatives than the CEO/COO could spare. In 2011, the new TCS
CEO N. Chandrasekaran modified the structure and added a new layer of leaders to oversee the businesses
and free up their time to work on strategy (see Figure 3.2). The new layer focuses on customers and aims
to boost revenue growth.4
TCS credits its growth to revenues of $19 billion in FY2018 from $6 billion in FY2009 to its earlier
restructuring, especially its ISUs. The restructuring continues. Current CEO Gopinathan explains: “We
actually doubled down on our earlier strategy of ISUs and have created sub-ISUs. We pushed it one level
down. We now have about 150 sub-P&L (profit & loss) heads who have been set up the same way the
old ISUs were set up.”5 This move helped push decision making to lower levels in the ever-expanding
company.

2
Cognizant website, August 4, 2015, https://www.glassdoor.com/Reviews/Employee-Review-Cognizant-Technology-Solutions-RVW7459726.
htm (accessed February 18, 2019).
3
This move helped power growth, with revenue soaring to over $19 billion in FY18 from $6 billion in FY09. Read more at https://economic
times.indiatimes.com/articleshow/66309922.cms (accessed March 6, 2019). Also see “Reinvented Blog by Prashanth Rai,” March 19, 2008,
http://cio-reinvented.typepad.com/cioreinvented/2008/03/tcs—new-organ.html (accessed December 19, 2011).
4
N. Shivapriya, “TCS CEO N Chandrasekaran Creates New Layer to Oversee Verticals,” May 25, 2011, http://articles.economictimes.
indiatimes.com/2011-05-25/news/29581999_1_tcs-ceo-n-chandrasekaran-tcs-spokesperson-structure (accessed December 19, 2011).
5
Jochelle Mendonca, “TCS Restructures Its Business Units to Focus on Long-Term Strategy,” The Economic Times, October 22, 2018,
https://economictimes.indiatimes.com/tech/ites/tcs-restructures-its-business-units-to-focus-on-long-term-strategy/articleshow/66309922.
cms (accessed February 2, 2019).
 Organizational Strategy and Information Systems 61

Chief Executive
Officer

Director,
Chief Operating
Industry
Officer
Solutions Unit
Multiple units
Director, New Director, Director, Director,
Growth Major Strategic Organization
Markets Markets Initiative Unit Infrastructure

Financial Process
India USA
Solutions Excellence

Technology
SME Excellence
APAC UK
Solutions
Shared
Business Services
Emerging Process
Europe
Markets Outsourcing Resource
Solutions Management

FIGURE 3.2 Tata Consultancy Services.

Source: “TCS Plans New Organizational Structure,” February 12, 2008, http://www.livemint.com/Companies/2ODg7L1mCcRlFowK1ktX5N/
TCS-plans-new-organisational-structure.html (accessed August 20, 2015).

While both Cognizant and TCS are large Indian outsourcing companies that found they needed to
reorganize to respond to problems resulting from growth, their problems were profoundly different.
Cognizant’s main problem was its lack of necessary information flows between the software engineers
in India and the customer service managers on the client location. Its complex problems resulted in
a correspondingly complex matrix structure. It focused on the delivery of information systems that
reflect refined technical solutions to their problems to its customers. Its new organization structure both
improves customer responsiveness and necessary information flows. It focuses on system development
and delivery and seeks to address the information flow problem that Cognizant previously experienced
in building systems.
In contrast, TCS’s organization chart reflects a focus not only on current customers but also on future
markets. That is why it added major units called “New Growth Markets” and “Strategic Initiative Unit.”
The Business Process Outsourcing and Small and Medium Enterprise solutions in this latter major unit
indicate the strategic directions that TCS wants to take. The organizational structure is designed to empha-
size these new growth areas and facilitate information flows along these lines in the organization. Its focus
is on building an ever-bigger market for its IS and the IS services that it provides.
Cognizant and TCS are both in the same business but chose different organizational structures to
carry out their objectives. The point is that different organizational structures reflect different organi-
zational strategies that are used to implement business strategies and accomplish organizational goals.
These organizational strategies need to be aligned with IS strategies. When used appropriately, IS leverage
human resources, capital, and materials to create an organization that optimizes performance. Companies
that design organizational strategy without considering IS strategies run into problems like those Cogni-
zant experienced. A synergy results from designing organizations with IS strategy in mind—a synergy that
cannot be achieved when IS strategy is just added on.
Chapter 1 introduces a simple framework for understanding the role of IS in organizations. The Infor-
mation Systems Strategy Triangle relates business strategy with IS strategy and organizational strategy. In
an organization that operates successfully, an overriding business strategy drives both organizational strat-
egy and IS strategy. The most effective businesses optimize the interrelationships between the organization
and its IS, maximizing efficiency and productivity.
Organizational strategy includes the organization’s design, as well as the managerial choices that define,
set up, coordinate, and control its work processes. As discussed in Chapter 1, many models of organiza-
tional strategy are available. One is the managerial levers framework that includes the complementary
62 ORGANIZATIONAL STRATEGY AND INFORMATION SYSTEMS

Variable Description
Organizational Variables

Decision rights The authority to initiate, approve, implement, and control various types of decisions
necessary to plan and run the business

Business processes The set of ordered tasks needed to complete key objectives of the business

Formal reporting relationships The structure set up to ensure coordination among all units within the organization; reflects
allocation of decision rights

Informal networks Mechanisms, such as ad hoc groups, which work to coordinate and transfer information
outside the formal reporting relationships

Control Variables

Data The facts collected, stored, and used by the organization

Planning The processes by which future direction is established, communicated, and implemented

Performance measurement and The set of measures that are used to assess success in the execution of plans and the
evaluation processes by which such measures are used to improve the quality of work

Incentives The monetary and nonmonetary devices used to motivate behavior within an organization

Cultural Variables

Values The set of implicit and explicit beliefs that underlies decisions made and actions taken;
reflects aspirations about the way things should be done

Locus The span of the culture, i.e., local, national, regional

FIGURE 3.3 Organizational design variables based on managerial levers.

Source: Adapted from James I. Cash, Robert G. Eccles, Nitin Nohria, and Richard L. Nolan, Building the Information Age Organization (Homewood,
IL: Richard D. Irwin, 1994).

design variables shown in Figure 3.3. Optimized organizational designs support optimal business pro-
cesses, and they, in turn, reflect the firm’s values and culture. Organizational strategy may be considered
as the coordinated set of actions that leverages the use of organizational design, management control
systems, and organizational culture to make the organization effective by achieving its objectives. The
organizational strategy works best when it meshes well with the IS strategy.
This chapter builds on the managerial levers model. Of primary concern is how IS impact the three types
of managerial levers: organizational, control, and cultural. This chapter looks at organizational designs that
incorporate IS to define the flow of information throughout the organization, explores how IS can facilitate
management control at the organizational and individual levels, and concludes with some ideas about how
culture impacts IS and organizational performance. It focuses on organizational-level issues related to
strategy. The next two chapters complement these concepts with a discussion of new approaches to work
and organizational processes.

Information Systems and Organizational Design

Organizations must be designed in a way that enables them to perform effectively. Different designs accom-
plish different goals. This section examines organizational variables. It focuses on how IS are designed in
conjunction with an organization’s structure. Ideally, an organizational structure is designed to facilitate
the communication and work processes necessary for it to accomplish the organization’s goals, and the
use of IS is often the way coordination and workflow are done. The organizational structures of Cogni-
zant and TCS, while very different, reflect and support the goals of each company. Perhaps intuitively,
organizational designers at those companies used organizational variables described in Figure 3.3 to build
their structures. Those variables include decision rights that underlie formal structures, formal reporting
relationships, and informal networks. Organizational processes are another important design component
that is discussed in more detail in Chapter 5.
 Information Systems and Organizational Design 63

Decision Rights
Decision rights indicate who in the organization has the responsibility to initiate, supply information for,
approve, implement, and control various types of decisions. Ideally, the individual who has the most infor-
mation about a decision and who is in the best position to understand all of the relevant issues should be
the person who has its decision rights. But this may not happen, especially in organizations in which senior
leaders make most of the important decisions. Much of the discussion of IT governance and accountabil-
ity in Chapter 9 is based upon who has the decision rights for critical IS decisions. When talking about
accountability, one has to start with the person who is responsible for the decision—that is, the person who
has the decision rights. Organizational design is all about making sure that decision rights are properly
assigned—and reflected in the structure of formal reporting relationships. IS support decision rights by
getting the right information to the decision maker at the right time and then transmitting the decision to
those who are affected. In some cases, IS enable a centralized decision maker to pass information that has
been gathered from operations and stored centrally down through the organization. If IS fail to deliver the
right information, or worse, deliver the wrong information to the decision maker, poor decisions are bound
to be made.
Consider the case of Zara from the last chapter. Each of its 2200+ stores orders clothes in the same way,
using sophisticated technology-driven systems and follows a rigid weekly timetable for ordering, which
provides the headquarters commercial team with the information needed to manage fulfillment. Many
other large retailers make the decision centrally about what to send to their stores, using forecasting and
inventory control models. However, at Zara, store managers have decision rights for ordering, enabling
each store to reflect the tastes and preferences of customers in its localized area. But, the store managers
do not have decision rights for order fulfillment because they have no way of knowing the consolidated
demand of stores in their area. The decision rights for order fulfillment lie with the commercial team in
headquarters because it is the team that knows about overall demand, overall supply, and store perfor-
mance in their assigned areas. The information from the commercial team then flows directly to designers
and production, allowing them to respond quickly to customer preferences.6

Formal Reporting Relationships and Organizational Structures

Organizational structure is the design element that ensures that decision rights are correctly allocated.
The structure of reporting relationships typically reflects the flow of communication and decision mak-
ing throughout the organization. Traditional organizational structures are hierarchical, flat, or matrix. The
networked structure is a newer organizational form. A comparison of these four types of organizational
structures may be found in Figure 3.4.

Hierarchical Organizational Structure

As business organizations entered the 20th century, their growth prompted a need for systems for process-
ing and storing information. A new class of worker—the clerical worker—flourished. From 1870 to 1920
alone, the number of U.S. clerical workers mushroomed from 74,200 to more than a quarter of a million.7
Factories and offices structured themselves using the model that Max Weber observed when studying
the Catholic Church and the German army. This model, called a bureaucracy, was based on a hierarchical
organizational structure.
Hierarchical organizational structure is an organizational form based on the concepts of division
of labor, specialization, span of control, and unity of command. Decision rights are highly specified and
centralized. When work needs to be done, orders typically come from the top and work is subjected to
the division of labor. That means it is segmented into smaller and smaller pieces until it reaches the level
of the business in which it will be done. Middle managers do the primary information processing and

6
MartinRoll, “The Secret of Zara’s Success: A Culture of Customer Co-Creation,” March 2018, https://martinroll.com/resources/articles/
strategy/the-secret-of-zaras-success-a-culture-of-customer-co-creation/ (accessed February 17, 2019); Andrew McAfee and Erik Brynjolfsson,
“Investing in the IT That Makes a Competitive Difference,” https://cb.hbsp.harvard.edu/cbmp/product/R0807J-PDF-ENG (accessed August
20, 2015); and James Surowiecki, The Wisdom of Crowds (New York: Anchor Books, 2005).
7
Frances Cairncross, The Company of the Future (London: Profile Books, 2002).
64 ORGANIZATIONAL STRATEGY AND INFORMATION SYSTEMS

Hierarchical Flat Matrix Networked

Description Bureaucratic form Decision making pushed Workers assigned to Formal and informal
with defined levels of down to the lowest level multiple supervisors communication
management in the organization in an effort to promote networks that connect
integration all parts of the company

Characteristics Division of labor, Informal roles, planning, Dual reporting Flexibility and
specialization, unity of and control; often small relationships based on adaptability
command, formalization and young organizations function and purpose

Type of Environment Stable, certain Dynamic uncertain Dynamic uncertain Dynamic uncertain
Best Supported

Basis of Structuring Primarily function Very loose Function and purpose Networks
(i.e., location, product,
customer)

Power Structure Centralized Decentralized Distributed (matrix Distributed (network)

managers)

FIGURE 3.4 Comparison of organizational structures.

communicating, telling their subordinates what to do and telling senior managers the outcome of what was
done. Jobs within the enterprise are specialized and often organized around particular functions, such as
marketing, accounting, manufacturing, and so on. Span of control indicates the number of direct reports.
The then TCS CEO, N. Chandrasekaran, revised the organizational structure to lower his span of control
by inserting a new layer with only a few leaders reporting directly to him. Unity of command means that
each person has a single supervisor. Rules and policies are established to handle the routine work per-
formed by employees of the organization. When in doubt about how to complete a task, employees turn
to the rules. If a rule doesn’t exist to handle the situation, employees turn to a supervisor in the hierarchy
for the decision. Key decisions are made at the top and filter down through the organization in a central-
ized fashion. Hierarchical structures, which are sometimes called vertical structures, are most suited to
relatively stable, certain environments in which the top-level executives are in command of the information
needed to make critical decisions. This allows them to make decisions quickly.
IS are typically used to store and communicate information and to support the information needs of
managers throughout the hierarchy. IS convey the decisions of top managers downward, and data from
operations are sent upward through the hierarchy using IS. Hierarchical structures are also very compat-
ible with efforts to organize and manage data centrally. The data from operations that have been captured
at lower levels and conveyed through IS increasingly need to be consolidated, managed, and made secure
at a high level. The data are integrated into databases that are designed so that employees at all levels of
the organization can see the information that they need when they need it. Often, there is an information
dashboard for executives, a system that provides a summary of key performance indicators (KPIs). Each
level of KPI has additional detail behind it, and executives can drill down into the details as necessary. For
example, a KPI revealing lower profitability might have been caused by higher costs or lower sales, and
managers would need to drill down through additional levels of information to understand why the KPI
changed. Managers throughout the hierarchy often have similar dashboards with the KPIs for their organi-
zation so that up and down the hierarchy, managers are looking at the same information consolidated for
their level of decision making.

Flat Organizational Structure

In contrast to the hierarchical structure, the flat, or horizontal, organizational structure has a less well-
defined chain of command. You often don’t see an actual organization chart for a flat organization because
the relationships are fluid and the jobs are loosely defined. That is, drawing an organization chart for a flat
organization is like trying to tie a ribbon around a puddle. In flat organizations, everyone does whatever
needs to be done to conduct business. There are very few “middle managers.” For this reason, flat organi-
zations can respond quickly to dynamic, uncertain environments. Entrepreneurial organizations, as well
as smaller organizations, often use this structure because they typically have fewer employees, and even
when they grow, they initially build on the premise that everyone must do whatever is needed. Teamwork
 Information Systems and Organizational Design 65

is important in flat organizations. To increase flexibility and innovation, decision rights may not be clearly
defined. Hence, the decision making is often decentralized because it is spread across the organization to
where the decisions are made. It is also time consuming. As the work grows, new individuals are added to
the organization, and eventually a hierarchy is formed where divisions are responsible for segments of the
work processes. Many companies strive to keep the “entrepreneurial spirit,” but in reality, work is done in
much the same way as with the hierarchy described previously. Flat organizations often use IS to off-load
certain routine work in order to avoid hiring additional employees. As a hierarchy develops, the IS become
the glue tying together parts of the organization that otherwise would not communicate. IS also enable flat
organizations to respond quickly to their environment.

Matrix Organizational Structure

The third popular form, which Cognizant ultimately adopted, is the matrix organizational structure. It
typically assigns employees to two or more supervisors in an effort to make sure multiple dimensions of the
business are integrated. Each supervisor directs a different aspect of the employee’s work. For example, a
member of a matrix team from marketing would have a supervisor for marketing decisions and a different
supervisor for a specific product line. The team member would report to both, and both theoretically would
be responsible in some measure for that member’s performance and development. That is, the marketing
manager would oversee the employee’s development of marketing skills and the product manager would
make sure that the employee develops skills related to the product. Thus, decision rights are shared between
the managers. The matrix structure allows organizations to concentrate on both functions and purpose. The
matrix structure allows the flexible sharing of human resources and achieves the coordination necessary to
meet dual sets of organizational demands. It is suited for complex decision making and dynamic and uncer-
tain environments. IS reduce the operating complexity of matrix organizations by allowing information
sharing among the different managerial functions. For example, a saleswoman’s sales would be entered into
the information system and appear in the results of all managers to whom she reports.
Cognizant might have moved to the matrix structure (see Figure 3.1) from a hierarchical structure
because the complexity of its projects had increased. “As part of the structure of a Cognizant engagement,
we always pair our technologists with people who have business context experience,” says Raj Mamodia,
who was then the Assistant Vice President of Cognizant’s Consumer Goods business unit (BU). The pur-
pose of these formally structured relationships is to meet the customer’s needs, and not just focus on “how
beautiful the technology is in and of itself.”8
The matrix organizational structure carries its own set of weaknesses. Although theoretically each boss
has a well-defined area of authority, the employees often find the matrix organizational structure frustrat-
ing and confusing because they are frequently subjected to two authorities with conflicting opinions, as
was painfully indicated by the disgruntled Cognizant employee at the beginning of this chapter. Conse-
quently, working in a matrix organizational structure can be time consuming because confusion must be
dealt with through frequent meetings and conflict resolution sessions. Matrix organizations often make it
difficult for managers to achieve their business strategies because they flood managers with more informa-
tion than they can process.

Networked Organizational Structure

Made possible by advances in IT, a fourth type of organizational structure emerged: the networked organi-
zational structure. Networked organizations characteristically feel flat and hierarchical at the same time.
An article published in the Harvard Business Review describes this type of organization: “Rigid hierarchies
are replaced by formal and informal communication networks that connect all parts of the company. . . .
[This type of organizational structure] is well known for its flexibility and adaptiveness.”9 It is particularly
suited to dynamic, unstable environments.
Networked organizational structures are those that rely on highly decentralized decision rights and
utilize distributed information and communication systems to replace inflexible hierarchical controls with

8
Cognizant Computer Goods Technology, “Creating a Culture of Innovation: 10 Steps to Transform the Consumer Goods Enterprise,”
October 2009, 6, http://www.cognizant.com/InsightsWhitepapers/Cognizant_Innovation.pdf (accessed August 20, 2015).
9
L. M. Applegate, J. I. Cash, and D. Q. Mills, “Information Technology and Tomorrow’s Manager,” Harvard Business Review (November–
December 1988), 128–36.
66 ORGANIZATIONAL STRATEGY AND INFORMATION SYSTEMS

controls based in IS. Networked organizations are defined by their ability to promote creativity and flex-
ibility while maintaining operational process control. Because networked structures are distributed, many
employees throughout the organization can share their knowledge and experience and participate in mak-
ing key organizational decisions. IS are fundamental to process design; they improve process efficiency,
effectiveness, and flexibility. As part of the execution of these processes, data are gathered and stored in
centralized data warehouses for use in analysis and decision making. In theory at least, decision making is
more timely and accurate because data are collected and stored instantly. The extensive use of communica-
tion technologies and networks also renders it easier to coordinate across functional boundaries. In short,
the networked organization is one in which IT ties together people, processes, and units.
The organization feels flat when IT is used primarily as a communication vehicle. Traditional hierarchi-
cal lines of authority are used for tasks other than communication when everyone can communicate with
everyone else, at least in theory. The term used is technological leveling because the technology enables
individuals from all parts of the organization to reach all of its other parts.
Portions of Zara’s organizational structure appear networked. Being networked enables the store man-
agers to use technology to communicate with designers. Daily trend information is sent by trend teams that
go to nightclubs and other fashion-oriented venues, as well as by the store managers, to a central database
from which the designers draw their inspiration. Zara uses the technology-supported structure to coordi-
nate the actions and decisions of tens of thousands of its employees so that they can focus their attention
on the same goal of making and selling clothes that people want to buy.

Other Organizational Structures

An organization is seldom a pure form of one of the four structures described here. It is much more com-
mon to see a hybrid structure in which different parts of the organization use different structures depending
on the information needs and desired work processes. For example, the IS department may use a hierar-
chical structure that allows more control over data warehouses and hardware, whereas the research and
development (R&D) department may employ a networked structure to capitalize on knowledge sharing.
In the hierarchical IS department, information flows from top to bottom, whereas in the networked R&D
department, all researchers may be connected to one another.
Further, IS are enabling even more advanced organization forms such as the adaptive organization,
the zero time organization,10 and heterarchies.11 Common to these advanced forms is the idea of agile,
responsive organizations that can configure resources and people quickly. These organizations are flexible
enough to sense and respond to changing demands. For example, heterarchies are a type of organizational
structure with shifting, distributed accountability, dynamic and blurred roles, and fuzzy and permeable
boundaries. It is characterized by multiple emergent performance criteria and temporary work teams. In
sum, heterarchies are designed to be adaptable and very responsive. Building in the capability to respond
instantly means designing the organization so that each of the key structural elements is able to respond
instantly.

Informal Networks
The organization chart reflects the authority derived from formal reporting relationships in the organiza-
tion’s formal structure. However, informal relationships also exist and can play an important role in an
organization’s functioning. Informal networks, in addition to formal structures, are important for align-
ment with the organization’s business strategy.
Sometimes, management designs some of the informal relationships or networks. For example, when
working on a special project, an employee might be asked to let the manager in another department know
what is going on. This is considered an informal reporting relationship. Or a company may have a job rota-
tion program that provides employees with broad-based training by allowing them to work a short time

For more information on zero-time organizations, see R. Yeh, K. Pearlson, and G. Kozmetsky, ZeroTime: Providing Instant Customer Value
10

Every Time, All the Time (Hoboken, NJ: John Wiley, 2000).
K. C. Kellogg, W. J. Orlikowski, and J. Yates, “Life in the Trading Zone: Structuring Coordination across Boundaries in Postbureaucratic
11

Organizations,” Organization Science 17, no. 1 (2006), 22–44.

 Information Systems and Organizational Design 67

in a variety of areas. Long after they have moved on to another job, employees on job rotations may keep
in touch informally with former colleagues, or call upon their past coworkers when a situation arises that
their input may be helpful. Hewlett Packard’s Decision Support and Analytics Services unit encouraged
the development of work-related informal networks when it established focused interest group/forums
known as Domain Excellence Platforms (DEPs). An IT-enabled DEP allows at least five people who hold
a common interest related to the business to form a team to share their knowledge on a topic (e.g., cloud
computing, web analytics). For nonbusiness-related topics, the employees can join conferences to talk
about the topic and get to know one another better. The hope is that they will start thinking beyond their
work silos.12
However, not all informal relationships are a consequence of a plan by management. Some networks
unintended by management develop for a variety of other factors including work proximity, friendship,
shared interests, family ties, and so on. The employees can make friends with employees in another depart-
ment when they play together on the company softball team, share the same lunch period in the company
cafeteria, or see one another at social gatherings. Informal networks can also arise for political reasons.
Employees can cross over departmental, functional, or divisional lines in an effort to create political coali-
tions to further their goals. Some informal networks even cross organizational boundaries. As computer
and information technologies facilitate collaboration across distances, social networks and virtual com-
munities are formed. Many of these prove useful in getting a job done, even if not all members of the net-
work belong to the same organization. LinkedIn is an example of a tool that enables large, global informal
networks.
One type of informal network is a social network, or a network of social interactions and personal rela-
tionships. Alternatively, and more commonly, a social network in organizations provides an IT backbone
linking all individuals in the enterprise, regardless of their formal title or position. Social networks can be
established, structured and managed by social networking sites. A social networking site (SNS) is a “net-
worked communication platform in which participants (1) have uniquely identifiable profiles that consist
of user-supplied content, content provided by other users, and/or system-provided data; (2) can publicly
articulate connections that can be viewed and traversed by others; and (3) can consume, produce, and/or
interact with streams of user-generated content provided by their connections on the site.”13
Within the organizational context, enterprise social network sites are becoming increasingly common.
An enterprise social networking site (ESNS) is basically a social networking site that is used within an
organization, that is formally sanctioned by management, and that can restrict membership and interac-
tions to the organization’s employees.14 For example, the ESNS Yammer limits an individual’s network to
other users who share the same corporate email domain.15 Though ESNSs are platforms that are techni-
cally similar to SNSs, their focus is on forming and maintaining connections and knowledge sharing inter-
nal to the organization. An ESNS links individuals together in ways that enable them to find experts, get
to know colleagues, and see who has relevant experience for projects across traditional organization lines.
At the financial services firm USAA, one social network on the company’s ESNS was created to help new
hires assimilate better into the organization by enabling them to connect with one another.
Some might regard an ESNS as a “super-directory” that provides not only the names of the individuals
but also their role in the company, their title, their contact information, and their location. It might even list
details such as their supervisor (and their direct reports and peers), the project(s) they are currently work-
ing on, and personal information specific to the enterprise. What differentiates an ESNS from previous IT
solutions to connect individuals is that it is integrated with the work processes themselves. Conversations
can take place, work activities can be recorded, and information repositories can be linked or merely rep-
resented within the structure of the social network.
IBM has a good example of how a social network permeates an organization, changing its culture,
structure, and collaboration processes. With over 360,000 employees, the company has a flurry of social

T. S. H. Teo, R. Nishant, M. Goh, and S. Agarwal, “Leveraging Collaborative Technologies to Build a Knowledge Sharing Culture at HP
12

Analytics,” MIS Quarterly Executive 10, no. 1 (March 2011), 1–18.

13
N. B. Ellison and D. Boyd, “Sociality through Social Network Sites,” in The Oxford Handbook of Internet Studies, ed. W. H. Dutton
(Oxford, UK: Oxford University Press, 2013), 158.
N. B. Ellison, J. L. Gibbs, and M. S. Weber, “The Use of Enterprise Social Network Sites for Knowledge Sharing in Distributed Organizations:
14

The Role of Organizational Affordances,” American Behavioral Scientist 59, no. 1 (2015), 103–23.
15
G. C. Kane, “Enterprise Social Media: Current Capabilities and Future Possibilities,” MIS Quarterly Executive 14, no. 1 (2015).
68 ORGANIZATIONAL STRATEGY AND INFORMATION SYSTEMS

activity embodied in more than 20,000 individual blogs, 50,000 internal wikis and websites, 475,000 file
shares, and over 300,000 employee profiles on IBM Connections, IBM’s ESNS. Its ESNS allows employ-
ees to share status updates, collaborate on internal systems, and share files.16

Information Systems and Management Control Systems

Controls are the second type of managerial lever. Not only does IS change the way organizations are struc-
tured but also it profoundly affects the way managers control their organizations. Management control is
concerned with the process of control: how planning is performed in organizations and how people and
processes are monitored, evaluated, and compensated or rewarded. Ultimately, it means that senior leaders
make sure the things that are supposed to happen actually happen—when they are supposed to happen.
Management control systems are similar to room thermostats. Thermostats register the desired tem-
perature. A sensing device within the thermostat determines whether the temperature in the room is within
a specified range of the one desired. If the temperature is beyond the desired range, a mechanism is acti-
vated to adjust the temperature. For instance, if the thermostat is set at 70 degrees and the temperature in
the room is 69, then the heater can be activated (if it is winter) or the air conditioning can be turned off
(if it is summer). Similarly, management control systems must respond to the goals established through
planning. Measurements are taken periodically and if the variance is too great, adjustments are made
to organizational processes or practices. For example, operating processes might need to be changed to
achieve the desired goals.
IS offer new opportunities for collecting and organizing data for three management control processes:
1. Data collection: IS enable the collection of information that helps managers determine whether they
are satisfactorily progressing toward realizing the organization’s mission as reflected in its stated goals.
2. Evaluation: IS facilitate the comparison of actual performance with the desired performance that is
established as a result of planning.
3. Communication: IS speed the flow of information from where it is generated to where it is needed.
This allows an analysis of the situation and a determination about what can be done to correct for
problematic situations. It also allows for coordination.
When managers need to control work, IS can play a crucial role. IS provide decision models for sce-
nario planning and evaluation. For example, the airlines routinely use decision models to study the effects
of changing routes or schedules. IS collect and analyze information from automated processes, and they
can make automatic adjustments to the processes. For example, a paper mill uses IS to monitor the mixing
of ingredients in a batch of paper and to add more ingredients or change the temperature of the boiler as
necessary. IS collect, evaluate, and communicate information, leaving managers with time to make more
strategic decisions.
Of course, the implicit assumption in this section on Management Control Systems is that both the
controller (i.e., manager) and controllee (i.e., employee) are human. But what if, in fact, the controller
is a form of technology? As organizations hire more remote workers, use ubiquitous technologies, and
become more reliant on mobile technologies, there is a possibility that technology may serve as a proxy for
a manager when it comes to measuring, monitoring, evaluating, and compensating or rewarding employee
performance. This is the case with technology-mediated control (TMC), or the use of technology in
managerial control processes.17 Well-known companies such as United Parcel Service (UPS) and Uber are
using TMC to monitor employee behavior and performance. For example, UPS tracks employees driving
behaviors (e.g., speed, seatbelt use) with sensors embedded in their delivery trucks, while Uber incentiv-
izes its drivers with algorithmically-derived strategies to encourage them to work longer and harder.

16
Madison Fox, “IBM – Using Social Media from Sales to Guidelines,” December 4, 2017, http://Smbp.Uwaterloo.Ca/2017/12/Ibm-Using-
Social-Media-From-Sales-To-Guidelines/ (accessed February 18, 2019).
M. Wiener and W. A. Cram, “Technology-Enabled Control,” 23rd Americas Conference on Information Systems, Boston, 2017; and W. A.
17

Cram and M. Wiener, “Technology-Mediated Control: Case Examples and Research Directions for the Future of Organizational Control,”
Communications of the Association for Information Systems, forthcoming.
 Information Systems and Management Control Systems 69

Planning and Information Systems

In the first chapter, the importance of aligning organizational strategy with the business strategy is dis-
cussed. An output of the strategizing process is a plan to guide in achieving the strategic objectives. IS can
play a role in planning in four ways:
• IS can provide the necessary data to develop the strategic plan. They can be especially useful in collect-
ing data from organizational units and integrating the data to transform those data into information for
the strategic decision makers.
• IS can provide scenario and sensitivity analysis through simulation and data analysis.
• IS can be a major component of the planning process.
• In some instances, an information system is a major component of a strategic plan. That is, as discussed
in Chapters 1 and 2, IS can be used to gain strategic advantage.

Data and Information Systems

In addition to focusing on organizational-level planning and control, managers use IS to build controls for
individuals. An important part of management control lies in making sure that individuals perform appro-
priately. At the individual level, IS can streamline the process of data collection (usually through monitor-
ing and analytical processes that use the collected data, as Chapter 4 discusses) and support performance
measurement and evaluation as well as compensation through salaries, incentives, and rewards.
Monitoring work can take on a completely new meaning with the use of information technologies.
IS make it possible to collect such data as the number of keystrokes, the precise time spent on a task,
exactly who was contacted, and the specific data that passed through the process. The data collected from
operations create large data stores that can be analyzed for trends. For example, a call center that handles
customer service telephone calls is typically monitored by an information system that collects data on the
number of calls each representative received and the length of time each representative took to answer
each call and then to respond to the question or request for service. Managers at call centers can easily and
nonintrusively collect data on virtually any part of the process. The organizational design challenge in data
collection is twofold: (1) to embed monitoring tasks within everyday work and (2) to reduce the negative
impacts to employees being monitored. Workers perceive their regular tasks as value adding but have dif-
ficulty in seeing how value is added by tasks designed to provide information for management control.
Research has found that monitoring does not always increase stress of the employee, especially when it
fits the task and is automatic and nonintrusive. 18 But employees often avoid activities aimed at monitoring
their work or worse, find ways to ensure that data recorded are inaccurate, falsified, or untimely. Collecting
monitoring data directly from work tasks—or embedding the creation and storage of performance infor-
mation into software used to perform work—renders the data more reliable.
A large number of software products are available for companies to monitor employees. Software
monitoring products are installed by companies to get specific data about what employees are doing. This
information can help ensure that work is being performed correctly. It can also be used to avoid barriers to
employee productivity from “cyberslacking” and “cyberslouching.”19 The intention may seem both ethi-
cal and in the best interest of business, but in practice, the reverse actually may be true. In many cases,
employees are not informed that they are being monitored or that the information gleaned is being used to
measure their productivity. In these cases, monitoring violates both privacy and personal freedoms. Man-
agers need to take into account employee privacy rights and try to balance their right to privacy against the
needs of the business to have surveillance mechanisms in place.

18
D. Galletta and R. Grant, “Silicon Supervisors and Stress: Merging New Evidence from the Field,” Accounting, Management and
Information Technology 5, no. 3 (1995), 163–83.
19
Bernd Carsten Stahl, “The Impact of the UK Human Rights Act 1998 on Privacy Protection in the Workplace,” Computer Security, Privacy
and Politics: Current Issues, Challenges and Solutions (Hershey, PA: Idea Group Publishing, 2008), 55–68.
70 ORGANIZATIONAL STRATEGY AND INFORMATION SYSTEMS

Performance Measurement, Evaluation, and Information Systems

IS make it possible to evaluate actual performance data against reams of standard and historical data, often
by using models and simulations. Analytics and big data tools have changed the way many companies
use data to make decisions. Managers can more easily and completely understand work progress and
performance. In fact, the ready availability of so much information catches some managers in “analysis
paralysis”: analyzing too much or too long. In our example of the call center, a manager can compare an
employee’s output to that of colleagues, to earlier output, and to historical outputs reflecting similar work
conditions at other times. Even though evaluation constitutes an important use of IS, how the information
is used has significant organizational consequences. Information collected for evaluation may be used to
provide feedback so that the employee can improve personal performance; it also can be used to determine
rewards and compensation. The former use—for improvement in performance—is nonthreatening and
generally welcomed.
Using the same information for determining compensation or rewards, however, can be threatening.
Suppose that a call center manager is evaluating the number and duration of calls that service representa-
tives answer on a given day. The manager’s goal is to make sure all calls are answered quickly, and he
communicates that goal to his staff. Now think about how the evaluation information is used.
If the manager simply provides the employees with information, then the evaluation is not threaten-
ing. If handled this way, employees might respond by improving their call numbers and duration. A dis-
cussion may even occur in which the service representative highlights other important considerations,
such as customer satisfaction and quality. Perhaps the representative takes longer than average on each
call because she believes that the attention devoted to the customer would result in higher customer
satisfaction.
On the other hand, some managers use the same information to rank employees so that top-ranked
employees are rewarded and those lower ranked are, in some way, punished or reprimanded. This may
cause employees to feel threatened and respond accordingly. The representative who is not on the top of
the list might shorten calls or deliver less quality, consequently decreasing customer satisfaction, while
increasing the values of the metrics that are measured. The lesson for managers is to pay attention to what
is monitored and how the information is used. Metrics for performance must be meaningful in terms of the
organization’s broader goals and measured, managed, and communicated appropriately.
How feedback is communicated in the organization plays a role in affecting behavior. Some feedback
can be communicated via IS themselves. A simple example is the feedback built into an electronic form
that will not allow it to be submitted until it is properly filled out. For more complex feedback, IS may not
be the appropriate vehicle. For example, no one would want to be told she or he was doing a poor job via
e-mail or voice mail. Negative feedback of significant consequence is best delivered in person.
IS can allow for feedback from a variety of participants who otherwise could not be involved. Many
companies provide “360-degree” feedback in which the individual’s supervisors, subordinates, and cow-
orkers all provide formal input. Social tools are making inroads in evaluation, too. For example, a “thumbs
up” or “1–5 stars” evaluation system makes it easy and fast to provide informal feedback and evaluate
activities. Because that feedback is received more quickly, improvements can be made faster.

Incentives and Rewards and Information Systems

Incentives and rewards are the ways organizations encourage good performance. A clever reward system
can make employees feel good without paying them more money. IS can affect these processes, too.
Some organizations use their websites to recognize high performers, giving them electronic badges that
are displayed on the social network to identify them as award recipients. Others reward them with new
technology. At one organization, top performers get new computers every year, while lower performers
get the “hand-me-downs.”
IS make it easier to design complex incentive systems, such as shared or team-based incentives. IS
make it easier to keep track of contributions of team members and, in conjunction with qualitative inputs,
allocate rewards according to complex formulas. For example, in a call center, agents can be motivated
to perform better by providing rewards based on tracking metrics, such as average time per call, number
 Information Systems and Culture 71

of calls answered, and customer satisfaction. IS can provide measures of all of these on a real-time
basis—even customer satisfaction through automated audio or website questionnaires after a customer
interaction.
When specifying reward metrics, managers must be careful because they tend to drive the behavior
they specify. For example, call center agents who know they will be evaluated only by the volume of
calls they process may rush callers and provide poorer service in order to maximize their performance
according to the narrow metric. Those measured only by customer satisfaction might spend more time
than necessary on each call and perhaps try endlessly to solve problems that should be routed to more
technical personnel.

Information Systems and Culture

The third managerial lever of organizational strategy is culture. Culture plays an increasingly important
role in IS management and use. Because IS management and use are complicated by human factors, it is
important to consider culture’s impact. Culture is defined as a set of “shared attitudes, values, and beliefs”
that a group holds and that determines how the group perceives, thinks about, and appropriately reacts to
its various environments.20
A “collective programming of the mind” distinguishes not only societies (or nations) but also indus-
tries, professions, and organizations.21 Beliefs are the perceptions that people hold about how things are
done in their community, whereas values reflect the community’s aspirations about the way things should
be done. Culture is something of a moving target because it evolves over time as the group solves problems
adapting to the environment and internal operations.
Culture has been compared to an iceberg because, like an iceberg, only part of the culture is visible
from the surface. In fact, it is necessary to look below the surface to understand the deep-rooted aspects
of culture that are not visible. That is, culture may be thought of in terms of layers: observable artifacts,
values, and assumptions. Observable artifacts are the most visible level. They include such physical
manifestations as type of dress, symbols in art, acronyms, awards, myths and stories told about the group,
rituals, and ceremonies. Espoused values are the explicitly stated preferred organizational values. Ide-
ally, they should be consistent with the enacted values, which are the values and norms that are actually
exhibited or displayed in employee behavior. For example, if an organization says that it believes in a good
work–life balance for its employees but actually requires them to work 12-hour days and on weekends,
the enacted values don’t match with the espoused ones. The deepest layer of culture is the underlying
assumption layer, or the fundamental part of every culture that helps discern what is real and important
to the group. Assumptions are unobservable because they reflect organizational values that have become
taken for granted to such an extent that they guide organizational behavior without any group members
thinking about them.22

Levels of Culture and IT

Culture can vary depending upon which group you are studying. Countries, organizations, and subgroups
in organizations all have a culture. IS management and use can be impacted by culture at all these levels. IS
can even play a role in promoting it. For instance, Cognizant used IT to implement “10/10/10,” a program
designed to keep its associates focused on innovation. On the tenth workday of each month at 10 a.m.,
everyone’s computer screen is frozen, allowing the entire Cognizant workforce to spend 10 minutes think-
ing about and sharing innovative ideas.23

20
A. Kinicki, Organizational Behavior: Core Concepts (Boston, MA: McGraw-Hill Irwin, 2008), 183.
G. J. Hofstede, Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations across Nations, 2nd ed. (Thousand
21

Oaks, CA: Sage Publications, 2001).

22
E. Schein, Organizational Change and Leadership, 4th ed. (San Francisco, CA: Jossey-Bass, 2010).
23
Cognizant Computer Goods Technology, “Creating a Culture of Innovation,” 1–6.
72 ORGANIZATIONAL STRATEGY AND INFORMATION SYSTEMS

National Values

Organizational Values

Information
IT Adoption
Systems
and Diffusion
Development

IT Issues

IT Use and IT Management

Outcomes and Strategy

(Entire Organization and within Organization)

FIGURE 3.5 Levels of culture.

Source: Adapted from D. Leidner and T. Kayworth, “A Review of Culture in Information Systems Research: Toward a Theory of Information
Technology Culture Conflict,” MIS Quarterly 30, no. 2 (2006), 372, Figure 1.

With the growth of analytics and the availability of large stores of data, many organizations are adopt-
ing a data-driven culture in which virtually all decisions are made with the support of analytics. In a data-
driven culture, managers are typically expected to provide data to support their recommendations and to
back up decisions. Information is often freely shared in this culture, and IS take on the important role of
collecting, storing, analyzing, and delivering data and information to all levels of the organization. Dell,
Procter and Gamble, Google, and Facebook are examples of companies that are known to have a data-
driven culture. Sometimes the employees in these companies are said to “speak the language of data” as
part of their culture.
When IS developers have values that differ from the clients in the same organization for whom they are
developing systems, cultures can clash. For example, clients may favor computer-based development prac-
tices that encourage reusability of components to enable flexibility and fast turnaround. Developers, on
the other hand, may prefer a development approach that favors stability and control but tends to be slower.
Both national and organizational cultures can affect IT management and usage and vice versa. National
culture may affect IT in a variety of ways, impacting IS development, technology adoption and diffusion,
system use and outcomes, and management and strategy. These relationships are shown in Figure 3.5 and
described next. The model and the discussion of the impact of culture on IT issues draws heavily from the
work of Leidner and Kayworth on levels of culture.24 At the broadest (highest) level are national values. At
the next level are organizational values that are held by the entire organization. Within the organization are
subgroup values such as those held by the IT department.

Information Systems Development

Variation across national cultures may lead to differing perceptions and approaches to IS development. In
particular, systems designers may have different perceptions of the end users and how the systems would
be used. For example, Danish designers who had more socialist values were more concerned about people-
related issues compared to Canadian designers with more capitalist values. The Canadian designers were
more interested in technical issues. National culture may also affect the perceptions of project risk and risk
management behaviors. At the organizational level, cultural values can affect the features of new software
and the way it is implemented.

D. Leidner and T. Kayworth, “A Review of Culture in Information Systems Research: Toward a Theory of Information Technology Culture
24

Conflict,” MIS Quarterly 30, no. 2 (2006), 357–99.

 Information Systems and Culture 73

Information Technology Adoption and Diffusion

National cultures that are more willing to accept risk appear to be more likely to adopt new technologies.
Those cultures that are less concerned about power differences among people (i.e., have low power
distance) are more likely to adopt technologies that help promote equality. People are more likely to adopt
a new technology if they think that the technology’s embedded values match those of their national culture.
Further, if a technology is to be successfully implemented into an organization, either the technology
must fit with the organization’s culture or the culture must be shaped to fit the behavioral requirements of
the technology. For example, a dashboard that shares analytics and KPIs to all employees would reduce
the “power” of leaders in a hierarchical organization in which only the senior managers have access to the
data. In such organizations, implementation of such an information system would likely be very slow or
rejected altogether because the culture would not support broad information sharing.

Information Technology Use and Outcomes

Research has shown that differences in culture result in differences in the use and outcomes of IT. At the
organizational level, cultural values are often related to satisfied users, successful IS implementations, or
knowledge management successes. At the national level, e-mail adoption was much slower in Japan than
in the United States. Japanese prefer richer forms of communication such as meeting face-to-face. The
lean e-mail can’t accommodate the symbols in their language as easily as a fax. Further, in countries that
are more likely to avoid uncertainty, such as Japan and Brazil, IT is used often for planning and forecast-
ing, whereas in countries that are less concerned about risk and uncertainty, IT is more often used for main-
taining flexibility. Furthermore, some things are acceptable in one country but not another. For example,
Ditch Witch could not use its logo globally because a witch is offensive in some countries.

Information Technology Management and Strategy

National and organizational cultures affect planning, governance, and perceptions of service quality. For
example, having planning cultures at the top levels of an organization typically signal that strategic sys-
tems investment is important. At Adidas, a multinational sports apparel company headquartered in Ger-
many, national culture played a role in its multisourcing strategy. Adidas’ managers selected an Eastern
European vendor because they were looking for a provider whose culture was similar to their own. They
thought that vendor’s employees were more likely to question system requirements and to make creative,
innovative contributions than the Indian vendors they had hired previously.25

National Cultural Dimensions and Their Application

One of the best-known (and prolific) researchers in the area of differences in the values across national
cultures is Geert Hofstede. Most studies about the impact of national cultures on IS have used Hofst-
ede’s dimensions of national culture. Hofstede26 originally identified four major dimensions of national
culture: power distance, uncertainty avoidance, individualism/collectivism, and masculinity/femininity.27
To correct for a possible bias toward Western values, a new dimension, Confucian work dynamism,
also referred to “short-term vs. long-term orientation,” was added.28 More recently, a sixth dimen-
sion, indulgence/restraint, was added to capture the extent to which a national culture is fun-loving
versus one that suppresses gratification of needs.29 Many others have used, built upon, or tried to correct
problems related to Hofstede’s dimensions. One notable project is the Global Leadership and Organiza-
tional Behavior Effectiveness (GLOBE) research program, which is a team of 150 researchers who have

25
Martin Wiener and Carol Saunders, “Forced Coopetition in IT Multi-Sourcing,” Journal of Strategic Information Systems 23, no. 3 (2014),
210–25.
26
G. Hofstede, Culture’s Consequences: International Differences in Work-Related Values (London: Sage, 1980).
27
Ibid.
28
G. Hofstede and M. H. Bond, “The Confucius Connection: From Cultural Roots to Economic Growth,” Organizational Dynamics 16
(1988), 4021.
29
https://www.hofstede-insights.com/models/national-culture/ (accessed February 17, 2019).
74 ORGANIZATIONAL STRATEGY AND INFORMATION SYSTEMS

Hofstede Dimensions (Related

GLOBE Dimensions) Descriptiona Examples of Effect on ITb
Uncertainty Avoidance Extent to which a society tolerates Countries with high uncertainty avoidance are
(Uncertainty Avoidance) uncertainty and ambiguity; extent to which less likely to adopt new IT and have higher
members of an organization or society strive perceptions of project risk than countries with
to avoid uncertainty by reliance on social low uncertainty avoidance.
norms, rituals, and bureaucratic practices to
alleviate the unpredictability of future events.

Power Distance (Power Degree to which members of an Individuals from high power distance
Distance) organization or society expect and agree that countries are found to be less innovative and
power should be equally shared. less trusting of technology than individuals
from low power distance countries.

Individualism/Collectivism Degree to which individuals are integrated Individualistic cultures are more predisposed
(Societal and In-Group into groups; extent to which organizational than collectivistic cultures to report bad
Collectivism) and societal institutional practices encourage news about troubled IT projects; companies
and reward collective distribution of in collectivist societies are more likely than
resources and collective action. individualistic societies to fill an IS position
from within the company.

Masculinity/Femininity Degree to which emotional roles are Australian groups (high masculinity) are
(General Egalitarianism and distributed between the genders; extent to found to generate more conflict and rely
Assertiveness) which an organization or society minimizes less on conflict resolution strategies than
gender role differences and gender Singaporean groups (low masculinity).
discrimination; often focuses on caring and
assertive behaviors.

Confucian Work Dynamism Extent to which society rewards behaviors When considering future orientation,
(Future Orientation) related to long- or short-term orientations; differences are found in the use of Executive
degree to which individuals in organizations Information Systems and the evaluation of
or societies engage in future-oriented service quality across countries.
behaviors such as planning, investing in the
future, and delaying gratification.

Indulgence/Restraint Degree to which individuals are encouraged Indulgent societies purchase more on the
to satisfy their basic and natural drives Internet.
and have fun vs. to suppress the gratification
of their needs by following strict social
norms.
a
Sources: Adapted from R. House, M. Javidan, P. Hanges, and P. Dorfman, “Understanding Cultures and Implicit Leadership Theories across the
Globe: An Introduction to Project GLOBE,” Journal of World Business 37, no. 1 (2002), 3–10 and G. Hofstede and G. J. Hofstede, “Dimensions of
National Culture,” http://www.geerthofstede.nl/dimensions-of-national-cultures.aspx (accessed August 20, 2015).
b
All examples except the last one were provided in D. Leidner and T. Kayworth, “A Review of Culture in Information Systems Research: Toward a
Theory of Information Technology Culture Conflict,” MIS Quarterly 30, no. 2 (2006), 357–99. Last example was found in E. Yıldırım, Y. Arslan, and
M. Türkmen Barutçu, “The Role of Uncertainty Avoidance and Indulgence as Cultural Dimensions on Online Shopping Expenditure,” Eurasian
Business and Economics Journal 4 (2016), 42–51.

FIGURE 3.6 National cultural dimensions.

collected data on cultural values and practices and leadership attributes from over 18,000 managers in 62
countries. The GLOBE project has uncovered nine cultural dimensions, six of which have their origins in
Hofstede’s pioneering work. The Hofstede dimensions and their relationship to the GLOBE dimensions
are summarized in Figure 3.6.
Even though the world may be becoming “flatter,” the research of Hofstede and the GLOBE researchers
demonstrates that cultural differences have not totally disappeared. But some leadership traits, such
as being trustworthy, just, and honest; having foresight and planning ahead; being positive, dynamic,
encouraging, and motivational; and being communicative and informed, are seen as universally acceptable
across cultures.30

30
Mansour Javidan and R. J. House, “Cultural Acumen for the Global Manager,” Organizational Dynamics 29, no. 4 (2001), 289–305.
 Summary 75

The generally accepted view is that the national culture predisposes citizens of a nation to act in a
certain way along a Hofstede or GLOBE dimension, such as in an individualistic way in England or in
a collectivist way in China. Yet, the extent of the influence of a national culture may vary among indi-
viduals, and culturally based idiosyncrasies may surface based upon the experiences that shape each
person’s ultimate orientation on a dimension. Having an understanding and appreciation for cultural val-
ues, practices, and subtleties can help in smoothing the challenges that occur in dealing with these idio-
syncrasies. An awareness of the Hofstede or GLOBE dimensions may help to improve communications
and reduce conflict.
Effective communication means listening, framing the message in a way that is understandable to the
receiver, and responding to feedback. Effective cross-cultural communication involves each of these plus
searching for an integrated solution that can be accepted and implemented by members of diverse cultures.
This may not be as simple as it sounds. For instance, typical American managers, noted for their high-
performance orientation, prefer direct and explicit language full of facts and figures. However, managers
in lower-performance-oriented countries such as Russia or Greece tend to prefer indirect and vague lan-
guage that encourages the exploration of ideas.31 Communication differences surfaced when one of this
book’s authors was designing a database in Malaysia. She asked questions that required a “yes” or “no”
response. In trying to reconcile the strange set of responses she received, the author learned that Malay-
sians are hesitant to ever say “no.” Communication in meetings is also subject to cultural differences. In
countries with high levels of uncertainty avoidance such as Switzerland and Austria, meetings should be
planned in advance with a clear agenda. The managers in Greece or Russia who come from a low uncer-
tainty avoidance culture often shy away from agendas or planned meetings.
Knowing that a society tends to score high or low on certain dimensions helps a manager anticipate how
a person from that society might react. However, this provides only a starting point because each person
is different. Importantly, without being aware of cultural differences, a company is unlikely to develop IS
or to use it effectively.

SUMMARY

• Organizational strategy re ects the use of the managerial levers of an organization’s design, organiza-
tional culture, and management control systems that coordinate and control work processes.
• Organizational designers today must have a working knowledge of what IS can do and how the choice
of information system will affect the organization itself.
• Organizational structures can facilitate or inhibit information ows.
• Organizational design should take into account decision rights, organizational structure, and informal
networks.
• Structures such as at, hierarchical, matrix and networked organizations are being enhanced by infor-
mation technology. Increasingly information technology enables and supports networked organizations
that can better respond to dynamic, uncertain organizational environments.
• Information technology affects managerial control mechanisms: planning, data, performance measure-
ment and evaluation, incentives, and rewards.
• Management control at the individual level is concerned with monitoring (i.e., data collection), evalu-
ating, providing feedback, compensating, and rewarding. It is the job of the manager to ensure that the
proper control mechanisms are in place, and the interactions between the organization and the IS do
not undermine the managerial objectives.
• Culture is the shared values, attitudes and beliefs held by individuals in an organization. Organizational
and national culture impact the success of an IS, and should be taken into account when designing,
managing, and using IS.

31
Ibid.
76 ORGANIZATIONAL STRATEGY AND INFORMATION SYSTEMS

KEY TERMS

assumptions, 71 espoused values, 71 observable artifacts, 71

beliefs, 71 hierarchical organizational organizational strategy, 62
bureaucracy, 63 structure, 63 social networking
culture, 71 matrix organizational site (SNS), 67
decision rights, 63 structure, 65 span of control, 64
enacted values, 71 networked organizational technology-mediated control, 68
enterprise social networking structures, 65 unity of command, 64
site (ESNS), 67 values, 71

DISCUSSION QUESTIONS

1. How might IS change a manager’s job?

2. Is monitoring an employee’s work on a computer a desirable or undesirable activity from a manager’s
perspective? From the employee’s perspective? How does the organization’s culture impact your posi-
tion? Defend your position.
3. Encana Oil & Gas Inc. is a natural gas firm. It sought to enact a digital transformation in what is con-
sidered a latecomer industry.i To do so, Encana’s senior management team and CIO worked together
to establish ten IS guiding principles that were intended to provide an adequate level of IT support for
capitalizing on data for cost cutting and business agility. To support the guiding principles, Encana
restructured its IS Organization. The structure was designed to allow IS managers to work closely with
BU managers in BU-IS Groups and to provide local solutions to meet the needs of the BUs. The IS
professionals were encouraged to learn the business and find ways to create efficiencies in the BUs.
Based on this information, what type of organizational structure would be most suitable for Encana?
Please explain.

Source:
i
R. Kohli and S. Johnson, “Digital Transformation in Latecomer Industries: CIO and CEO Leadership Lessons from Encana
Oil & Gas (USA) Inc.,” MIS Quarterly Executive, 10, no. 4, (2011).
 Discussion Questions 77

Case Study 3-1 Uber’s Use of Technology-Mediated Control

Uber Technologies, founded in 2009, is a ride-hailing company that leverages the cars and time
of millions of drivers who are independent contractors in countries around the globe. One recent
estimate by Uber Group Manager, Yuhki Yamashita, is that Uber drivers globally spend 8.5 million
hours on the road—daily. As independent contractors, Uber tells its drivers “you can be your own
boss” and set your own hours. Yet, Uber wants to control how they behave. Uber exerts this control
not through human managers, but through a “ride-hail platform on a system of algorithms that serves
as a virtual ‘automated manager.’” Drivers’ work experiences are entirely mediated through a mobile
app.
Uber’s mobile app collects data and guides the behavior of the drivers in such a way that in reality
they aren’t as much their own boss as they might like to be. For example, while they can work when they
want, Uber’s surge fare structure of charging riders more during high-volume periods motivates
them to work during times that they might not otherwise choose. The app even sends algorithmically
derived push notifications like: “Are you sure you want to go offline? Demand is very high in your
area. Make more money, don’t stop now!” Hence, Uber uses technology to exert “soft control” over
its drivers.
Uber employs a host of social scientists and data scientists to devise ways to encourage the driv-
ers to work longer and harder, even when it isn’t financially beneficial for them to do so. Using its
mobile app, it has experimented with video game techniques, graphics and badges and other noncash
rewards of little monetary value. The mobile app employs psychologically influenced interventions
to encourage various driver behaviors. For example, the mobile app will alert drivers that they are
close to achieving an algorithmically generated income target when they try to log off. Like Netflix
does when it automatically loads the next program in order to encourage binge-watching, Uber sends
drivers their next fare opportunity before their current ride is over. New drivers are enticed with
signing bonuses when they meet initial ride targets (e.g., completing 25 rides). To motivate drivers
to complete enough rides to earn bonuses, the app periodically sends them words of encourage-
ment (“You’re almost halfway there, congratulations!”). The mobile app also monitors their rides
to ensure that they accept a minimum percentage of ride requests, complete a minimum number of
trips, and are available for a minimum period of time in order to qualify to earn profitable hourly
rates during specified periods. Uber has a blind acceptance rate policy, where drivers do not get
information about the destination and pay rate for calls until after they accept them. This can mean
that drivers might end up accepting rates that are unprofitable for them. On the other hand, drivers
risk being “deactivated” (i.e., be suspended or removed permanently from the system) should they
cancel unprofitable fares. The system keeps track of the routes taken to ensure that the driver selected
the most efficient route.
The mobile app also captures passenger ratings of the driver on a scale of one to five stars. Since
the drivers don’t have human managers per se, the passenger satisfaction ratings serve as their most
significant performance metric, along with various “excellent-service” and “great-conversation”
badges. But how satisfied are the drivers themselves? Uber’s driver turnover rate is high—report-
edly closing in on 50% within the first year that the drivers sign up. One senior Uber official said:
“We’ve underinvested in the driver experience. We are now re-examining everything we do in order
to rebuild that love.”

Sources: JC, “How Many Uber Drivers Are There?” Ridester, January 29, 2019, https://www.ridester.com/how-many-
uber-drivers-are-there/ (accessed February 18, 2019); Wiener and Cram AMCIS 2017 and Cram and Wiener 2019
Communications of the Association for Information Systems (forthcoming); IBID and N. Scheiber, “How Uber Uses
Psychological Tricks to Push Its Drivers’ Buttons,” New York Times, 2017, https://www.nytimes.com/interactive/
2017/04/02/technology/uber-drivers-psychological-tricks.html (accessed February 18, 2019); and A. Rosenblat,
Uberland: How Algorithms Are Rewriting the Rules of Work (Oakland, CA: University of California Press, 2018).

Discussion Questions
1. Uber is faced with the monumental challenge of controlling and motivating millions of drivers
who are important to its business, but who aren’t on its payroll. How effective do you think Uber’s
“automated manager” is as a managerial control system for Uber drivers? Please explain.
78 ORGANIZATIONAL STRATEGY AND INFORMATION SYSTEMS

Case Study 3-1 (Continued)

2. What are the benefits to Uber of using technology-mediated control through its mobile app? What
are the downsides?
3. What impact, if any, do you think Uber’s use of technology-mediated control has on its organiza-
tional culture?
4. Do you think the Uber digital business model is a sustainable one? Please provide a rationale for
your response.

Case Study 3-2 e FBI

The Federal Bureau of Investigation of the U.S. government, the FBI, was forced to scrap its $170
million virtual case file (VCF) management system. Official reports blamed numerous delays, cost
overruns, and incompatible software. But a deeper examination of the cause of this failure uncovered
issues of control, culture, and incompatible organizational systems.
Among its many duties, the FBI is charged with the responsibility to fight crime and terrorism.
To do so, it requires a large number of agents located within the United States and around the world.
That means agents must be able to share information among themselves within the bureau and with
other federal, state, and local law enforcement agencies. But sharing information has never been
standard operating procedure for this agency. According to one source, “agents are accustomed to
holding information close to their bulletproof vests and scorn the idea of sharing information.” This
turned out to be a real problem in an investigation of DarkMarket, an Internet forum that connected
buyers and sellers so that they could exchange stolen information such as bank details and credit card
numbers. When both the FBI and Secret Service agents were investigating each other as criminals, it
took their British colleagues, who knew the secrets of both agencies, to avert a crisis.
Enter the FBI’s efforts to modernize its infrastructure, codenamed “Trilogy.” The efforts included
providing agents with 30,000 desktop PCs, high-bandwidth networks to connect FBI locations
around the world, and the VCF project to facilitate sharing of case information worldwide. The FBI
Director explained to Congress that VCF would provide “an electronic means for agents to globally
send field notes, documents, pieces of intelligence and other evidence so they could hopefully act
faster on leads.” It was designed to replace a paper-intensive process with an electronic, web-based
process. With such a reasonable goal, why didn’t it work?
The CIO of the FBI offered one explanation. He claimed that the FBI needed to change its culture.
“If the Bureau is ever going to get the high-tech analysis and surveillance tools it needs to . . . fight ter-
rorism, we must move from a decentralized amalgam of 56 field offices . . . to a seamlessly integrated
global intelligence operation capable of sharing information and preventing crimes in real-time.” He
added that the Bureau personnel were also very distrustful of the technology, as well as others not
only in other organizations but also within the FBI.
A former project manager at the FBI further explained: “They work under the idea that everything
needs to be kept secret. But everything doesn’t have to be kept secret. To do this right, you have to
share information.”
The VCF system has been shut down, but the CIO is working on a new approach. He is busy try-
ing to win buy-in from agents in the field so that the next case management system will work. The
Director of the FBI has helped too. He reorganized the governance of IT, taking its budget control
away from the districts and giving total IT budget authority to the CIO.
The FBI built a new case management system called Sentinel. The new system includes work-
flow, document management, record management, audit trails, access control, and single sign-on.
It provides enhanced information sharing, search, and analysis capabilities to FBI agents and facili-
tates information sharing with members of the law enforcement and intelligence communities.
 Discussion Questions 79

Case Study 3-2 (Continued)

The FBI also has a billion-dollar Next Generation Identification (NGI) system with 52 million
searchable facial images and 100 million individual fingerprint records as well as millions of palm
prints, DNA samples, and iris scans. NGI can scan mug shots for a match and pick out suspects from
a crowd scanned by a security camera or in a photograph on the Internet. The information can be
exchanged with 18,000 law enforcement agencies 24 hours a day, 365 days a year.i When combined
with Sentinel, NGI further enhances the effectiveness of the FBI’s antiterror efforts.
i
Federal Bureau of Investigation, “FBI Announces Full Operational Capability of the Next Generation Identi cation
System,” September 15, 2014, https://www.fbi.gov/news/pressrel/press-releases/fbi-announces-full-operational-
capability-of-the-next-generation-identi cation-system (accessed August 20, 2015).
Sources: Adapted from Allan Holmes, “Why the G-Men Aren’t IT Men” CIO, June 15, 2005, 42–45; Marc Goodman,
Future Crimes (Toronto, Canada: Random House, 2015); and John Foley, “FBI’s Sentinel Project: 5 Lessons Learned,”
Information Week, February 8, 2012, https://www.informationweek.com/applications/fbis-sentinel-project-5-lessons-
learned/d/d-id/1105637 (accessed March 6, 2019).

Discussion Questions
1. What do you think were the real reasons why the VCF system failed?
2. What were the points of alignment and misalignment between the IS strategy and the FBI organi-
zation?
3. Can anything be done to change the organizational culture of the FBI so that the agents are more
willing to share information? If so, please describe the steps that could be taken to make this
change happen?
4. If you were the CIO, what would you do to help the FBI modernize and make better use of infor-
mation technology?
 4
Digital Systems and the Design
of Work

Flexible work arrangements made possible by remote work combined with collaboration, social,
mobile, cloud, robotic, and analytic technologies have opened up dramatically different ways to
work. This chapter explores the impact technology has on the nature and design of work. A Work
Design Framework is used to explore how digital technology can be used effectively to support
these changes and help make employees more effective. In particular, this chapter discusses
technologies to support communication and collaboration, new types of work, new ways of doing
traditional work, new challenges in managing employees, and issues in working remotely, with
robots and on virtual teams. It concludes with a section on change management.

Consumer financial services powerhouse American Express viewed workplace flexibility as a strategic
lever. Its award-winning BlueWork program was a good example of turning strategic intent into action. In
addition to receiving the Chairman’s Award for Innovation (i.e., the Top Innovators Prize), the BlueWork
program enabled increased employee productivity and more than $10 million in annual savings from
reduced office space costs.1 BlueWork was Amex’s term for arrangements for flexibility in workspace.
Integrated into the company’s human resource policies, the flexibility included staggered working hours,
off-site work areas such as home/virtual office arrangements, shared office space, touch-down (laptop-
focused, temporary) space, and teleworking. The corporate focus is on results rather than on hours clocked
in the office and face-to-face time. But BlueWork also supported the sustainability and corporate social
responsibility objectives. According to the Amex website,
Our sustainable facilities story is also woven into the fabric of our employees’ daily routine. BlueWork, our flex-
ible workplace program, allows American Express employees to better utilize company work space and work
remotely. The installation of 63 telepresence studios in 46 office locations encourages virtual meetings, reduces
the need for travel, and contributes positively to our carbon reduction target.2
Employees are assigned to a type of work arrangement based on their role. Hub employees require a
fixed desk because they work in the office every day. Club employees can share time between the office
and other locations because their roles involve both face-to-face and virtual meetings. Home employees
work from home at least three days a week. Roam employees are on the road or at customer sites. Susan
Chapman-Hughes, then Senior Vice President at American Express commented on the importance of tech-
nology’s role in alternative work arrangements: “Technology drives workplace flexibility. . . . Technology
has become a strategic competency that drives revenue growth. It’s not just about enabling productivity.”3

1
Christopher Palafax, “American Express’s New Design Team,” American Builders Quarterly, April/May/June 2014, http://
americanbuildersquarterly.com/2014/american-express/ (accessed August 25, 2015); http://www.employeralliance.sg/toolkit/toolkit/tk1_13_2a.
html (accessed August 25, 2015); Monak Mitra, “Best Companies to Work for 2012,” The Economic Times, http://articles.economictimes.
indiatimes.com/2012-07-16/news/32698433_1_employee-benefits-jyoti-rai-american-express-india (accessed August 25, 2015); and Jeanne
Meister, “Flexible Workspaces: Employee Perk or Business Tool to Recruit Top Talent?” Forbes, April 1, 2013, http://www.forbes.com/sites/
jeannemeister/2013/04/01/flexible-workspaces-another-workplace-perk-or-a-must-have-to-attract-top-talent/ (accessed August 25, 2015).
2
American Express Corporate Social Responsibility Report, Quarter 3 2014 Update, http://about.americanexpress.com/csr/crr-2014-q3.aspx
(accessed August 25, 2015).
3
Gensler, Dialog 22, http://www.gensler.com/uploads/documents/Dialogue-22.pdf (accessed August 25, 2015).

80
 Digital Systems and the Design of Work 81

How has BlueWork impacted the staff? In addition to the productivity improvements and savings in
office expenses, overall employee satisfaction is up. American Express managers are happy with these
arrangements too. They have found employees to be more engaged while working, more committed to
the company, and better able to drive needed results.4 American Express has adopted one of the most
accommodating approaches to work hours, but many employers allow their employees some flexibility
in their work schedule. A third or more of IBM, Aetna, and AT&T employees have no official desks at
the company. Communications giant Cisco, which has about 75,000 employees on six continents, uses
technology-enabled flexible work practices such as telecommuting, remote work, and flex time. 5 Sun
Microsystems Inc. calculates that it has saved over $400 million in real estate costs by allowing nearly half
of its employees to work anywhere they want.6 Even the U.S. Government has a flexible work program,
Flexiwork, that enables eligible employees to do their job under alternative work arrangements such as
working from home.7
The American Express example illustrates how the nature of work has changed—and information tech-
nology (IT) is supporting, if not propelling, the changes. In preindustrial societies, work was seamlessly
interwoven into everyday life. Activities all revolved around nature’s cyclical rhythms (i.e., the season, day,
and night; the pangs of hunger) and the necessities of living. The Industrial Revolution changed this. With
the practice of dividing time into measurable, homogeneous units for which they could be paid, people
started to separate work from other spheres of life. Their workday was distinguished from family, commu-
nity, and leisure time by punching a time clock or responding to the blast of a factory whistle. Work was also
separated into space as well as time as people went to a particular place to work.8
Technology and new work arrangements have once again enabled an integration of work activities into
everyday life. Technologies have made it possible for employees to do their work in their own homes,
on the road, or at an alternative work space at times that accommodate home life and leisure activities.9
Paradoxically, however, employees often want to create a sense of belonging within the space where they
work. That is, they wish to create a sense of “place,” which is a bounded domain in space that structures
their experiences and interactions with objects that they use and other people that they meet in their work
“place.” People learn to identify with these “places,” or locations in space, based on a personal sharing of
experiences with others within the space. Over time, visitors to the place associate it with a set of appro-
priate behaviors.10 Increasingly “places” are being constructed in space with web tools that encourage
collaboration, allowing people to easily communicate on an ongoing basis, once again changing the nature
of where work is done.
The Information Systems Strategy Triangle, as discussed in Chapter 1, suggests that changing infor-
mation systems (IS) results in altered organizational characteristics. Significant changes in IS and the
work environments in which they function are bound to coincide with significant changes in the way that
companies are structured and how people experience work in their daily lives. Chapter 3 explores how IT
influences organizational design. This chapter focuses on the way IT is changing the nature of work, the
rise of new work environments, and IT’s impact on different types of employees, where and when they do
their work, and how they collaborate. This chapter looks at how IT enables and facilitates a shift toward
collaborative and virtual work. The terms IS and IT are used interchangeably in this chapter, and only basic
details are provided on technologies used. The point of this chapter is to look at the impact of IT on the
way work is done by individuals and teams. This chapter can help managers understand the challenges in
designing technology-intensive work, develop a sense of how to address these challenges, and overcome
resistance to IT-induced change.

4
http://www.forbes.com/sites/jeannemeister/2013/04/01/flexible-workspaces-another-workplace-perk-or-a-must-have-to-attract-top-talent/
(accessed June 9, 2019).
5
https://www.cisco.com/c/dam/en_us/solutions/industries/docs/gov/flexible_work_practices_cs.pdf (accessed February 25, 2019).
6
“Smashing the Clock,” Bloomberg News, December 10, 2006, http://www.bloomberg.com/bw/stories/2006-12-10/smashing-the-clock
(accessed May 29, 2015).
7
The IRS is one example of these U.S. government programs. For more information, see http://www.irs.gov/irm/part6/irm_06-800-002.html
(accessed May 29, 2015).
8
S. Barley and G. Kunda, “Bringing Work Back In,” Organizational Science 12, no. 1 (2001), 76–95.
9
S. Harrison and P. Dourish, “Re-Place-ing Space: The Roles of Place and Space in Collaborative Systems,” Proceedings of the 1996 ACM
Conference on Computer Supported Cooperative Work (1996), 67–76.
10
C. Saunders, A. F. Rutkowski, M. Genuchten, D. Vogel, and J. M. Orrega, “Virtual Space and Place: Theory and Test,” MIS Quarterly 35,
no. 4 (2011), 1079–98.
82 DIGITAL SYSTEMS AND THE DESIGN OF WORK

Work Design Framework

As the place and time of work becomes less distinguishable from other aspects of people’s lives, the
concept of “jobs” changes and is replaced by the concept of “work.” Prior to the Industrial Revolution, a
job meant a discrete task of a short duration with a clear beginning and end.11 By the mid-20th century, the
concept of a job evolved into an ongoing, often unending stream of meaningful activities that allowed the
worker to fulfill a distinct role. More recently, organizations are moving away from organization structures
built around particular jobs to a setting in which a person’s work is defined in terms of what needs to be
done.12 In many organizations, it is no longer appropriate for people to establish their turfs and narrowly
define their jobs to address only specific functions. Yet, as jobs “disappear,” IT can enable employees to
better perform their roles in tomorrow’s workplace; that is, IT can help employees function and collaborate
in accomplishing work that more broadly encompasses all the tasks that need to be done.
In this chapter, a simple framework is used to assess how emerging technologies may affect work. As is
suggested by the Information Systems Strategy Triangle (in Chapter 1), this framework links the organiza-
tional strategy with IS decisions. This framework is useful in designing characteristics of work by asking
key questions and helping identify where IS can affect how the work is done.
Consider the following questions:
• What work will be performed? Understanding what tasks are needed to complete the process being done
by the employee requires an assessment of specific desired outcomes, inputs, and transformation needed
to turn inputs into outcomes. Many types of work are based upon recurring operations such as those
found in manufacturing plants or service industries. The value chain helps in understanding the workflow
for key tasks that are performed (i.e., purchasing, materials handling, manufacturing, customer service,
repair). Increasingly, much work is done at a keyboard and involves managing knowledge, information,
or data. Each type of work has a unique set of characteristics and tasks that needs to be supported by IT.
• Who is going to do the work? Sometimes the work can be automated, or even performed by a robot.
However, if a person is going to do the work, who should that person be? What skills are needed? From
what part of the organization should that person come? If a team is going to do the work, many of these
same questions need to be asked. However, they are asked within the context of the team: Who should
be on the team? What skills do the team members need? What parts of the organization need to be
represented by the team? Will the team members be dispersed?
• Where will the work be performed? With the increasing availability of networks, web tools, virtual
meeting rooms, apps, mobile devices, cloud-based computing, and the Internet, in general, managers
can now design work for employees who come to the office or who work remotely. Does the work need
to be performed locally at a company office? Can it be done remotely at home? On the road?
• When will the work be performed? Traditionally, work was done during “normal business hours,” which
meant 9 A.M. to 5 P.M. In many parts of the world, a job between the hours of 9 and 5 is an anomaly.
Technologies also make it easier to work whenever necessary. The reality of modern technologies is that
they often tether employees to a schedule of 24 hours a day, seven days a week (24/7) when they are
always accessible to calls or other communications through their mobile devices.
• How can the acceptance of IT-induced change to work be increased? In this text, the overarching ques-
tions are how to leverage IT to help improve work and how to keep IT from inhibiting work. Sometimes
this means automating certain tasks. For example, computers are much better at keeping track of inven-
tory, calculating compensation, and many other repetitious tasks that are opportunities for human error.
On the other hand, technologies provide increasing support for tasks at which humans excel, such as
decision making, communication, and collaboration tasks among employees. Using a structured change
management approach to manage IT-induced change can increase the probability of success.
Figure 4.1 shows how these questions can be used in a framework to incorporate technologies into the
design of work. Although it is outside the scope of this chapter to discuss the current research on either
work or job design, you are encouraged to read these rich literatures.

11
William Bridges, JobShift: How to Prosper in a Workplace without Jobs (New York: Addison-Wesley, 1995).
12
Ibid.
 How Information Technology Changes the Nature of Work 83

WHAT:
What work will be
performed?
(e.g., operations,
sales, service,
management)

WHERE:
WHO: WHEN:
Where will the work
Who is going to do When will the work
be performed?
the work? be performed?
(e.g., at the office,
(e.g., individuals, (e.g., 9-5, 24/7,
at home,
groups, robots) flexible scheduling)
on the road)

HOW:
How can acceptance of IT-induced
change to work be increased?
(e.g., unfreeze-change-refreeze,
Kotter’s 8 steps, technology
acceptance model )

FIGURE 4.1 Framework for work design.

How Information Technology Changes the Nature of Work

Advances in IT provide an expanding set of tools that make individual employees more productive and
broaden their capabilities. They transform the way work is performed—and the nature of the work itself.
This section examines three ways in which new IT alters employee life: by creating new types of work, by
enabling new ways to do traditional work, and by supporting new ways to manage people.

Creating New Types of Work

IT often leads to the creation of new jobs or redefines existing ones. The high-tech field has emerged
in its entirety over the past 60 years and has created a wide range of positions in the IT sector, such as
programmers, developers, analysts, managers, hardware assemblers, website designers, software sales
personnel, data scientists, social media specialists, and consultants. A study based on the Bureau of
Labor Statistics has placed the number of IT employees in the United States at an all-time high of
11.5 million.13 Even within traditional non-IT organizations, the growing reliance on IS creates new
types of jobs, such as data scientists who mine for insights in the company’s data, community manag-
ers who manage the firm’s online communities, and communications managers who manage the use of
communication technologies for the business. IS departments also employ individuals who help create
and manage the technologies, such as systems analysts, database administrators, network administra-
tors, and network security advisors. The web has given rise to many other types of jobs, such as web
masters and site designers. Virtually, every department in every business has someone who “knows the
information systems” as part of his or her job.

13
Business Facilities, “US Technology Sector Added Nearly 200,00 Jobs in 2017,” March 27, 2018, https://businessfacilities.com/2018/03/
u-s-technology-sector-added-nearly-200000-jobs-2017/ (accessed February 25, 2019).
84 DIGITAL SYSTEMS AND THE DESIGN OF WORK

New Ways to Do Traditional Work

Changing the Way Work Is Done
IT has changed the way work is done. Many traditional jobs are now done by computers. For example,
computers can check spelling in documents, whereas traditionally that was the job of an editor or writer.
Jobs once done by art and skill are often greatly changed by the introduction of IT. Workers at one time
needed an understanding of not only what to do but also how to do it; now their main task often is to make
sure the computer is working because the computer does the task for them. Sadly, many cashiers no longer
seem to be able to add, subtract, or take discounts because they have grown up letting the computer in their
point-of-sale (POS) terminal do the calculations for them. Workers once were familiar with many others in
their organization because they passed work to them; now they may never know those coworkers because
the IT routes the work. In sum, the introduction of IT into an organization can greatly change the day-to-
day tasks performed by its employees.
In her landmark research, Shoshana Zuboff described a paper mill in which papermakers’ jobs were radi-
cally changed with the introduction of computers.14 The papermakers mixed big vats of paper and knew when
the paper was ready by the smell, consistency, and other subjective attributes of the mixture. For example, one
employee could judge the amount of chlorine in the mixture by sniffing and squeezing the pulp. They were
masters at their craft, but they were not able to explicitly describe to anyone else exactly what was done to
make paper. An apprenticeship was needed to train new generations of masters, and the process of learning
how to smell and squeeze the paper pulp was arduous. The company, in an effort to increase productivity in
the papermaking process, installed an information and control system. Instead of the employees looking at
and personally testing the vats of paper, the system continuously tested parameters and displayed the results
on a panel located in the control room. The papermakers sat in the control room, reading the numbers, and
making decisions on how to make the paper. Many found it much more difficult, if not impossible, to make
the same high-quality paper when watching the control panel instead of personally testing, smelling, and
looking at the vats. The introduction of the information system resulted in the need for different skills to
make paper. Abstracting the entire process and displaying the results on electronic readouts required skills to
interpret the measurements, conditions, and data generated by the new computer system.
In another example, sales and delivery people at a snack company have portable devices that not only
keep track of inventory but also help them in the selling function. Prior to the information system, the
salespeople used manual processes to keep track of inventory in their trucks. When visiting customers, it
was possible only to tell them what was missing from their shelves and to replenish any stock they wanted.
With IS, the salespeople have become more like marketing and sales consultants, helping the customers
with models and data of previous sales, floor layouts, and replenishment as well as forecasting demand
based on analysis of the data histories stored in the IS. The salespeople need to do more than be persuasive.
They now must also do data analysis and floor plan design in addition to using the computer. Thus, the
skills needed by the salespeople as well as the workflow have greatly changed with the introduction of IS.
One of the biggest changes in workflow has been in the area of data entry. In the past, the workflow
included capturing the data, keying it into the system, rekeying it to check its accuracy, and then processing
it. The workflow has now changed to capture the data directly when it is entered by the user in a variety
of ways such as from the web, with a GPS signal, using a spoken response, or by reading the RFID code.
A program may check its accuracy when it is captured and then process it. Companies are moving away
from entering sales data at all; customers enter it for them when they place an order. As many data entry
tasks are eliminated, the steps in the workflow are drastically reduced, and the process is much faster.
A study by Frey and Osborn examined 702 occupations and noted that 47% of total U.S. employ-
ment is at high risk of being automated in the next few years. The most likely employees to be replaced
by automation and robots are workers in transportation and logistics occupations who will be replaced
by driverless cars, a large number of office and administrative support workers, and an ever-growing
number of workers on the production line. Least likely to be automated are those jobs with nonrou-
tine tasks involving complex perception and finger or manual dexterity as well as creative and social
intelligence.15 Even knowledge employees, who once felt safe in their jobs because of the high degree of

14
Shoshana Zuboff, In the Age of the Smart Machine: The Future of Work and Power (New York: Basic Books, 1988), 211.
15
C. B. Frey and M. Osborn, “The Future of Employment: How Susceptible Are Jobs to Computerisation?” Technological Forecasting and
Social Change 114 (2017): 254–80.
 How Information Technology Changes the Nature of Work 85

analysis and diagnosis they performed, are at risk of automation as analytics and cognitive intelligence
systems incorporating machine learning become increasingly more accurate in their predictions and
diagnoses.
The web enables changes in many types of work. For example, within minutes, financial analysts can
download an annual report from a corporate website to their smartphones and check what others have
said about the company’s growth prospects on social networks. Librarians can check the holdings of other
libraries online and request that particular volumes be routed to their own clients or download digital ver-
sions of the articles from a growing number of databases. Marketing professionals can pretest the reac-
tions of consumers through experiments on their websites. Technical support agents diagnose and resolve
problems on remote client computers using the Internet. The cost and time required to access information
has plummeted, increasing personal productivity, and giving employees new tools. It is hard to imagine a
job today that doesn’t have a significant information systems component.
For those tasks that must be done by people, companies can use IT to find willing employees at what
may seem like bargain rates. Amazon’s Mechanical Turk is a marketplace site on which an organiza-
tion can post tasks at specified rates. Willing employees around the globe can use this site to find those
tasks. For example, a company posted that it wanted employees to enter data from photos of cash register
receipts. Another company posted a task offer of transcribing a 25-second audiotape. Many of these task
offers involve very small amounts, often $.05 to $.25. Some tasks take a significant portion of an hour
and pay up to $5 or more. Some employees do very brief tasks at low pay so they can gain higher status
and qualify for higher-paying tasks. Although this isn’t automating a task inside an organization, from
the manager’s perspective, it’s another way to use IT to change the work done by the employees of the
organization.

Changing Communication Patterns

All one has to do is observe people on subways, elevators, busy downtown streets, or college campuses to
note changes in communication patterns over the last decade. Some people are talking on their cell phones,
but even more are texting or using apps for all kinds of reasons, such as checking out game scores, specials
at nearby restaurants, and movie times. Or observe what happens when a plane lands. It seems that most
people on the plane whip out their portable devices or cell phones as soon as the plane touches down. They
are busy making arrangements to meet the people who are picking them up at the airport or checking to see
the calls or e-mails they missed while in flight. Finally, consider meeting a friend at a busy subway station
in Hong Kong. It is virtually impossible without the aid of a cell phone to locate each other. Some may say
that we are addicted to our mobile technologies, unable to put them away even when driving or walking,
which unfortunately sometimes leads to dangerous behaviors.
Applications (Apps) such as iMessage, Instagram, WhatsApp, Skype, Twitter, and WeChat (Chinese
Twitter) have changed how people communicate. Traditionally, people found each other in person to
have a conversation in the moment. With the telephone, people called each other and both parties had to
participate at the same time to have a conversation. Along came e-mail, which rapidly became the com-
munication technology of choice because it eliminated the need for those involved in the conversation
to participate at the same time. Today, people have an array of communications technologies, and, once
again, IT is changing communication patterns. Some rely on texting, others on video conferences, such
as FaceTime or Skype, and still others on social networks such as Facebook or Renren, for their primary
communications channel. The challenge created by the large number of choices is that individuals now
must have a presence on numerous platforms to ensure that they can be contacted. Further, one must
know how not only to contact someone but also to recognize that the person’s preferred medium might
change during the day, week, or month. For example, during normal business hours, an employee might
prefer to receive e-mail or a phone call. But after hours, he or she might prefer a text, and late at night,
while surfing the web, may prefer a message on Facebook Messenger or Skype. Without knowledge of
the recipients’ preferences for how to receive the message, the sender is likely to be unsuccessful in com-
municating with the recipients over the proper channel. A sender who doesn’t know which medium the
recipient prefers might use one medium (e.g., e-mail) to see whether the recipient is open to using another
medium (e.g., phone).
Similarly, IT is changing the communication patterns of employees. There are still some employees
who do not need to communicate with others for the bulk of their workday. For example, many truck
86 DIGITAL SYSTEMS AND THE DESIGN OF WORK

drivers do not interact with others in their organization while driving to their destination. But there are
other ways communication technologies have changed the work done by truck drivers. Consider the exam-
ple of a Walmart driver who picks up goods dropped off by manufacturers at the Walmart distribution
center and then delivers them in small batches to Walmart stores. Walmart has provided its drivers with
radios and satellite systems so that, on short notice, on their way back to the distribution center to load up
for the next delivery, they can opportunistically pick up goods from manufacturers and take them to the
distribution center. In this way, the company saves the delivery charges from that manufacturer and con-
serves energy in the process. Walmart office staff and drivers therefore use IT to save money by enhancing
their communications with suppliers.16
Many changes in communication have been supported, if not propelled, by IT. Some communi-
cation technologies help make large companies feel smaller by bringing together employees from
geographically disparate locations and from a variety of divisions and levels in the organization. Large
companies can feel smaller because communications technology enables individuals to find each
other despite the organization’s size. These tools also help small companies feel like large companies
because, to some degree, they level the playing field in the ways companies communicate and col-
laborate. Thomas Friedman, the author of the popular The World Is Flat and other books, argues that
collaboration is the way that small companies can “act big” and flourish in today’s flat world. The
key to success is for such companies “to take advantage of all the new tools for collaboration to reach
farther, faster, wider and deeper.”17 For example, any company can have a Facebook page or a Twitter
feed, making it difficult to distinguish between small and large organizations simply by interacting
over these technologies.

Changing Organizational Decision Making and Information Processing

IT changes not only organizational decision-making processes but also the information used in making
those decisions. Data processed to create more accurate and timely information are being captured earlier
in a process. Analytics (see Chapter 12) have made it possible to mine huge data stores to identify insights,
make predictions, and even suggest decisions. Through IT, information that employees need to do their job
can be pushed to them in real time or saved and made available when they need it.
IT can change the amount and type of information available to employees. For example, salespeople
can use technology to get quick answers to customer questions. Further, IT-based tools allow salespeople
to search for best practices on a marketing topic over a social network and to benefit from blogs and wikis
written by informed employees in their company. Organizations now maintain large comprehensive busi-
ness databases, called data warehouses, that can be mined by using tools to analyze patterns, trends, and
relationships. We discuss data management in Chapter 12.
Modern devices with voice interfaces have assistants that further change decision-making processes.
Apps/devices such as Siri, Alexa, Bixby, and Google Now allow users to issue verbal commands or
questions that will result in actions (such as changing the thermostat) or answers to questions on their
devices. These types of interfaces are increasingly being built into enterprise systems to supplement ways
employees gather information, increasing employee efficiency.
In their classic 1958 Harvard Business Review article, Leavitt and Whisler boldly predicted that
IT would shrink the ranks of middle management by the 1980s.18 Because of IT, top-level executives
would have access to information and decision-making tools and models that would allow them to
easily assume tasks previously performed by middle managers. Other tasks clearly in the typical job
description of middle managers at the time would become so routinized and programmed because of
IT that lower-level managers could perform them. As Leavitt and Whisler predicted, the 1980s saw a
shrinking in the ranks of middle managers. This trend was partly attributable to widespread corporate
downsizing, which forced many organizations to find alternatives to getting the work done and IT
solutions to proliferate to fill the gap. However, it was also attributable to changes in decision making
induced by IT. Since the 1980s, IT has become an even more commonly employed tool of executive
decision makers. IT has increased the flow of information to them and provided tools for filtering and
analyzing the information.

16
Thomas L. Friedman, The World Is Flat (New York: Farrar, Straus and Giroux, 2005), 145.
17
Ibid.
18
Harold Leavitt and Thomas Whisler, “Management in the 1980s,” Harvard Business Review (November–December 1958), 41–8.
 How Information Technology Changes the Nature of Work 87

Changing Collaboration
IT helps make work more team oriented and collaborative. Technologies such as texting (SMS), instant
messaging (IM), web logs (blogs), groupware, wikis, social networking, virtual meeting rooms, video tel-
econferencing, and team collaboration software suites (e.g., Basecamp, Slack) are at the heart of collabora-
tion today. Groups can form and share documents with less effort using these platforms. Group members
can seek or provide information from or to each other much more easily than ever before. And groups can
connect by voice or with voice and video using these platforms.
Collaboration takes place in one of four ways. Teams are collocated and work together at the same time;
they are collocated but work at different times; they are not located in the same place but work at the same
time; or they work from different places at different times. Figure 4.2 summarizes these options and lists
representative technologies that facilitate collaboration for each type of team.
Consider the New York–based marketing firm CoActive Digital whose president decided to implement a
wiki to have a common place where 25 to 30 people could go to share a variety of documents ranging from
large files to meeting notes and PowerPoint presentations.19 An added benefit was that the wiki was encrypted,
protected, and could be used only with a virtual private network (VPN), or a secure connection, usually over
the Internet, that allowed remote users and regional offices access into a company’s proprietary, internal net-
work. The president recognized that the challenge for implementing the wiki would be to change a culture in
which e-mail had long been the staple for communication. Consequently, he decided to work closely with the
leader of the business development group. This group handled inquiries from customers and coordinated the
work (i.e., marketing campaigns) internally. The group needed to hold many meetings and share much work.
He populated the wiki site with the documents that had formerly been traded over e-mail and asked the leader
to encourage her group members to use the wikis. It took some effort, but eventually the group learned to
appreciate the benefits of the wiki for collaboration and to reduce members’ dependence on e-mail.
Verifone’s company culture is one that encourages information sharing. A story is told of a new sales-
person who was trying to close a particularly big deal. He was about to get a customer signature on the
contract when he was asked about the competition’s system. Being new to the company, he did not have
an answer, but he knew he could count on the company’s information network for help. He asked his
customer for 24 hours to research the answer. He then sent an e-mail to everyone in the company asking
the questions posed by the customer. The next morning, he had several responses from others around the
company. He went to his client with the answers and closed the deal. What is interesting about this exam-
ple is that others around the world treated the “new guy” as a colleague even though they did not know
him personally. He was also able to collaborate with them instantaneously. It was standard procedure, not
panic time, because of the culture of collaboration in this company. With increased use of social networks
and other social tools, instantaneous collaboration is commonplace.20
The web has greatly enhanced collaboration. Beyond sharing and conversing, teams can also use the
web to create something together. An example of this is Wikipedia, on which individuals who do not know
each other contribute to the information on a topic. At computer company Dell, a web-based site named

Team Works at the Same Time Team Works at Different Time

Team Works in Face-to-face meetings Electronic bulletin boards
the Same Place Meeting room technologies Document sharing systems (wikis)
Document sharing systems (wikis) Team collaboration software suites
Team collaboration software suites

Team Works in Video conferencing E-mail

Different Places Chat rooms Microblogs (e.g., Twitter)
Texting (SMS) and instant messaging (IM) Texting (SMS) and instant messaging (IM)
Document sharing systems (wikis) Document sharing systems (wikis)
Team collaboration software suites Team collaboration software suites

FIGURE 4.2 Collaboration technologies matrix: examples of key enabling technologies.

Source: Adapted from Geraldine DeSanctis and R. Brent Gallupe, “A Foundation for the Study of Group Decision Support Systems,” Management
Science 33, no. 5 (May 1987), 589–609.

19
C. G. Lynch, “How a Marketing Firm Implemented an Enterprise Wiki,” http://www.cio.com/article/print/413063 (accessed July 9, 2008).
Hossam Galal, Donna Stoddard, Richard Nolan, and Jon Kao, “VeriFone: The Transaction Automation Company,” Harvard Business School
20

Case Study 195–088, July 1994.

88 DIGITAL SYSTEMS AND THE DESIGN OF WORK

IdeaStorm was used for idea generation, discussion, and prioritization between and among individuals in
the Dell community, including staff, executives, customers, and potential customers. Statistics showed that
over 23,000 ideas were submitted, over 747,000 votes for ideas were recorded, and over 100,000 comments
were posted about the ideas suggested. Dell’s management implemented over 500 of the ideas, many of
which came directly from customers describing what they wanted to see in Dell’s products and services.
Ideas ranged from small incremental improvements such as adding a port to an existing product to large
sweeping changes such as creating a new product line. Some ideas, such as how to change the retail experi-
ence or support activities, were process oriented. Some ideas were about education, the environment, and
other topics related to Dell’s business. The company then implemented an internal version of this system,
Employee Storm, only open to internal staff. Employee Storm invited ideas on company benefits, innova-
tions, ways to work better, and other company-focused issues. Many other companies implemented similar
platforms, including IBM’s ThinkPlace, BestBuy’s BlueShirt Nation, and ESPN’s SportsNation.

Changing the Ways to Connect

Probably one of the biggest impacts of new technologies is that people are always connected. In fact, many
feel tethered to their mobile phones, tablets, or laptops to such a large extent that they must be available
at all times so that they can respond to requests from their supervisors, colleagues, customers, friends,
and family. As a result, the boundaries between work and play have become increasingly blurred, causing
people to struggle even more with work–life balance.
Further, technology is connecting more people and devices than ever before. It has been estimated by
2020 over four billion people worldwide will be using over 26 billion devices connected to the Internet.21 The
problem is trying to figure out with whom among those billions of people and devices you want to connect.
Businesses are faced with figuring out this problem on a much smaller scale within their own
organizations. IBM solved this problem with SmallBlue—an opt-in social network analysis tool that maps
the knowledge and the connections of IBM employees. SmallBlue can be used to find employees with
specific knowledge or skills, display employee networks on particular topics, validate a person’s expertise
based on her or his corporate profile, and display a visualization of an employee’s personal social networks.
IBM claims that SmallBlue has promoted innovation, effectiveness, and efficiency.22
Businesses are still trying to understand the technological advances that have become commonplace.
Many in the workforce find that their technology at home differs from that at work and prefer those at
home. For example, while although many use social media tools on their tablets, laptops, or smartphones
during the weekend at home, on Monday morning, they find themselves working on an older desktop
system with slow access to the files and web-based systems they want to use for their work.23 They find
this quite bothersome because they want their work systems to be as flexible and offer as many apps as
their personal devices. For that reason, they are pushing for BYOD (Bring Your Own Device). This has
ushered in IT consumerization in the companies where they work. 24 (See Chapter 9 on Governance for a
more complete discussion of IT consumerization.)
The preceding examples show how technologies have become a key component in the design of work.
IT has greatly changed day-to-day tasks, which in turn has changed the skills needed by employees. The
examples show how adding IT to a work environment can change the way that work is done.

New Ways to Manage People

New working arrangements create new challenges in how employees are supervised, evaluated, compen-
sated, and even hired. When most work was performed individually in a central location, supervision, and
evaluation were relatively easy. A manager could directly observe the employee who spent much of his

21
S. Baller, S. Dutta, and B. Lanvin, “The Global Information Technology Report 2016: Innovating in the Digital Economy,” World Economic
Forum and INSEAD, 2016, http://online.wsj.com/public/resources/documents/GITR2016.pdf (accessed February 27, 2019).
22
For additional information on SmallBlue, see http://www.watson.ibm.com/cambridge/Projects/project8.shtml (accessed May 31, 2015).
Cognizant, “The Future of Work Has Arrived: Time to Re-Focus IT,” February 2011, 1–15, http://www.cognizant.com/SiteDocuments/
23

CBC_FoW_Time_to_Refocus_IT.pdf (accessed August 25, 2015).

24
R. W. Gregory, E. Kaganer, O. Henfridsson, and T. J. Ruch, “IT Consumerization and the Transformation of IT Governance,” MIS Quarterly
42, no. 4 (2018), 1225–53, page 1228.
 How Information Technology Changes the Nature of Work 89

or her day in an office. It was fairly simple to determine whether or not the employee was present and
productive.
Modern organizations often face the challenge of managing a workforce that is spread across the world
in isolation from in-person supervision and working mostly in teams. Sales work is one area in which we
see this. Rather than working in a central office, external salespeople work remotely, relying on laptop
computers, smart phones, the web, and apps linking them to customers, office colleagues, sales support
information, and other databases. The technical complexity of some products, such as enterprise software,
necessitates a team-based sales approach combining the expertise of many individuals, and technologies
connect the team together.
Modern organizations must also choose among three types of formal controls to ensure that work is
done properly.25 Behavior controls involve direct monitoring and supervision of employee actions while
the work is being done. Vivid depictions of behavior controls are provided in road construction projects
that have one employee digging and another watching, motionless with arms folded. On the other hand,
outcome controls involve examining work outcomes rather than work actions. Finally, input controls
involve managing human, financial, and material project resources.26 In relation to human resources, they
are concerned with the proper fit between the person and the job, often involving picking the right person
for the task.
It is important for managers to choose the right type of control for each position being supervised.
Behavior controls make the most sense for physical labor in which incorrect particular body movements
might be inefficient or even dangerous. Programmers would consider it quite insulting to have a supervisor
exercise action control and watch every keystroke, whereas transcriptionists might understand the need
to track each keystroke. Outcome controls make more sense not only for programmers but also for many
other personnel, such as engineers, sales managers, and ad writers. However, input controls are more use-
ful when it would take several years to evaluate the results of work, which is often the case when goals
are indefinable, conflicting, or confusing and the stakes are high. The alternative is to hire a person (input)
who has the knowledge and ability to do the work. For instance, when Apple was having difficulty defining
a meaningful product line in the mid-1990s, the firm resorted to input control when it determined that it
needed to augment its human resources by bringing back Steve Jobs to help move forward with its product
line. After two decades, hindsight shows that Jobs was the right choice.
When the results of work are fairly well defined, technology can change dramatically how it is
monitored. One technological solution, electronic employee monitoring (as introduced in Chapter 3)
can provide detailed behavior controls, automatically logging keystrokes, listing the websites visited,
or even recording the contents of an employee’s screen. Technology-mediated controls (TMCs) can even
replace direct human supervision with data gathered from equipment sensors or from software. As noted
in Chapter 3, United Parcel Service (UPS) uses TMC to monitor employee behavior by tracking employee
driving behaviors (e.g., speed, seatbelt use) with sensors embedded in their delivery trucks. Technology
can also provide outcome controls by tracking the number of calls processed, e-mail messages sent, or time
spent surfing the web. When output is monitored digitally, pay-for-performance compensation strategies
reward employees for deliverables produced or targets met as opposed to vague subjective factors such as
“attitude” or “teamwork.” Further, supervisors can spend time coaching, motivating, and planning rather
than personally monitoring performance because they can utilize the information gathered from electronic
monitoring systems for that task. The introduction of BlueWork at American Express illustrates the need
to change from an approach in which managers watch employees and count the hours they spend at
their desks to one that focuses instead on the work they actually do. These changes are summarized in
Figure 4.3.
IT has also impacted the way employees are hired, becoming an essential part of that process for many
firms. Open positions are posted on job websites, and applicants submit resumes over the web, complete
applications on line, and refer potential employers to their personal websites. When researching candidates,

25
L. J. Kirsch, “Portfolios of Control Modes and IS Project Management,” Information Systems Research 8, no. 3 (1997), 215–39; W. G.
Ouchi, “The Transmission of Control through Organizational Hierarchy,” Academy of Management Journal 21, no. 2 (1978), 173–92; and
K. A. Merchant, Modern Management Control Systems, Text and Cases (Upper Saddle River, NJ: Prentice Hall, 1998).
26
Martin Wiener, Magnus Mahring, Ulrich Remus, and Carol Saunders, “Control Configuration and Control Enactment in Information
Systems Projects: Review and Expanded Theoretical Framework,” MIS Quarterly 40, no. 3 (2016), 741–74.
90 DIGITAL SYSTEMS AND THE DESIGN OF WORK

Traditional Approach: Subjective Observation Digital Approach: Objective Assessment

Supervision It is personal and informal. Manager is usually present It is electronic or assessed by deliverables. As
or relies on others to ensure that the employee is long as the employee is producing value, he or
present and productive. she does not need direct formal supervision.

Evaluation Behavior controls are predominant. Focus is on Outcome controls are predominant. Focus is on
process through direct observation. Manager sees how output by deliverable (e.g., produce a report by
employee performs at work. Subjective (personal) a certain date) or by target (e.g., meet a sales
factors are very important. quota). Fewer subjective measures are used.

Compensation It is often individually based. It is often team based or contractually spelled out.
and Rewards

Hiring Hiring is done through meetings with HR personnel It is often electronic with recruiting websites and
with little concern for computer skills. electronic testing for more information-based
work that requires a higher level of IT skills.

FIGURE 4.3 Changes to supervision, evaluations, compensation, and hiring.

companies often look at Facebook pages and do online searches of the candidates to see what pops up.
Social networking provides a forum for informal introductions and casual conversations in cyberspace.
Interviews can be arranged via Skype or another teleconferencing app to reduce travel costs. A face-to-
face interview is usually eventually required, but recruiters can significantly and more effectively filter the
applicant pool using IT, increasing efficiency and reducing the number of expensive site visits.
In addition, companies increasingly realize that hiring is changing and that recruiting efforts should
reflect the new approaches candidates use to look for jobs. Tech-savvy job applicants are now using
business-oriented social networks such as LinkedIn to seek contacts for jobs and online job search engines
such as Monster.com, Indeed.com, and CareerBuilder.com to find job listings. A Facebook app, BeKnown,
provides a profile detailing an individual’s work experience, a news feed for contact updates and actions,
a search tool to locate people and connect with them, and a way to recommend other users or display
badges earned for completing certain professional goals. The app is also integrated with Monster.com’s
job listings.27
Furthermore, the way an organization uses IT affects the array of technical and nontechnical skills
needed in its employees. For example, many basic clerical tasks can be performed expeditiously and
reliably with IT, so fewer employees with those basic skills are required, making room for those with more
targeted skills. Employees who only have basic skills and who cannot keep pace with IT are increasingly
unemployable.
The design of the work needed by an organization is a function of the skill mix required for its work
processes and of the flow of those processes themselves. Thus, a company that infuses technology effec-
tively and employs a workforce with a high level of IT skills designs itself differently from a company
that does not. The skill mix required by an IT-savvy firm reflects a high capacity for using the technology
itself. For example, because many clerical skills are now embedded in the technologies staff use, fewer
clerical staff are needed and those who are hired by the company often do specialized work that is not eas-
ily automated or subsumed by technology.
As workforce demographics shift, so do the IT needs and opportunities to change work. Digital
natives—people who have grown up using computers, social networking sites, texting, and the web as a
normal, integrated part of their daily lives—are finding new and innovative ways to do their work. There
are widely varying impacts from the skills these employees bring to their work, including how to do their
work in a new, and often more efficient, manner.
IT has drastically changed the landscape of work today. As a result of IT, many new jobs have been
created. In the next section, we examine how IT can change where work is done, when it is done, and who
does it.

27
Kristin Burnham, “Monster.com Brings Professional Social Networking to Facebook,” CIO.com, July 15, 2011, http://blogs.cio.com/
print/16406 (accessed February 2, 2012).
 Where Work Is Done and Who Does It: Mobile and Virtual Work Arrangements 91

Where Work Is Done and Who Does It: Mobile and Virtual
Work Arrangements
This section examines another important effect of IT on work: the ability of some employees to work
anywhere at any time. With wi-fi (short for “wireless fidelity” but more commonly used to refer to popular
wireless networking technology) virtually ubiquitous, individual employees can connect to the web from
almost anywhere. And with powerful technologies available in the consumer space, employees often find
the tools and apps they have at home function as well as, or even better than, their workplace technologies.
Research also suggests that employees—especially those younger employees who have never known a
world without ubiquitous access to personal smart devices and the web—prefer to have the work–life
flexibility that remote and mobile work arrangements provide. At the group level, virtual teams have
become standard operating mechanisms to bring the best individuals available to work together on a task.
We explore remote work from the perspective of both individuals and teams in the next section.

Remote Work and Virtual Teams

Flexible work arrangements, although not the norm for many organizations, have been gaining support
as technologies enable employees to be “virtually present” for their employers. The terms teleworking,
telecommuting, mobile worker, and remote worker are often used to describe flexible work arrangements.
Teleworking, sometimes called telecommuting, refers to employees working from home, at a customer
site, or from other convenient locations instead of coming into the corporate office. The word telecommute
is derived from combining “telecommunications” with “commuting,” indicating that these employees
use telecommunications instead of driving, or commuting, to the office. Mobile workers are those who
work from wherever they are. They are outfitted with the technology necessary for access to coworkers,
company computers, intranets, and other information sources. Remote workers is the broad term we use
to encompass teleworkers, telecommuters, and mobile workers.
Such employees work not only on a remotely independent basis but also with remote members on
virtual teams. Virtual teams are defined as two or more people who (1) work together interdependently
with mutual accountability for achieving common goals, (2) do not work in either the same place and/or at
the same time, and (3) must use electronic communication and other digital technologies to communicate,
coordinate their activities, and complete their team’s tasks. Initially, virtual teams were seen as an alternative
to conventional teams that meet face-to-face. However, it is simplistic to view teams as either meeting
totally face-to-face or totally virtually. Rather, teams may reflect varying degrees of virtuality. Virtual
team members may be in different locations, organizations, time zones, or work shifts (day, evening, or
overnight). Further, like most teams, virtual teams may have distinct, relatively permanent membership, or
they may be relatively fluid as they evolve to respond to changing task requirements and as members leave
and are replaced by new members.
Virtual teams are thought to have a life cycle like most teams.28 Their life cycle, shown in Figure 4.4,
is noteworthy because it consists of the important activities in team development: Teams are formed; their
work is completed; and, the team is disbanded.

Factors Driving Use of Remote Work and Virtual Teams

Remote working has been around since the 1970s, but it has steadily gained popularity beginning in the
late 1990s. In the United States, 4.3 million employees now work remotely at least half the time. 29 And as
managers move to build teams of the best talent available, they inevitably turn to virtual teams as the mech-
anism to bring people together for a task. Several factors that drive these trends are shown in Figure 4.5.
The first factor is that work is increasingly knowledge based. The United States and many other
world economies continue to shift from manufacturing to service industries. Equipped with the right IT,

G. Hertel, S. Geister, and U. Konradt, “Managing Virtual Teams: A Review of Current Empirical Research,” Human Resource Management
28

Review 15, no. 1 (2005), 69–95.

29
Global Workplace Analytics, Latest Telecommuting Statistics, November 2018, https://globalworkplaceanalytics.com/telecommuting-
statistics (accessed February 27, 2019).
92 DIGITAL SYSTEMS AND THE DESIGN OF WORK

Phase Preparation Launch Performance Management Team Development Disbanding

Key Mission statement Kick-off meetings Leadership Assessment of Recognition of
Activities Personnel selection Getting acquainted Communication needs/deficits achievements
Task design Goal clarification Conflict resolution Individual and/ Reintegration
Rewards system Norm development Task accomplishment or team training of team
Technology Motivation Evaluation of members
selection and Knowledge management training effects
installment Norm enforcement and Trust building
shaping

FIGURE 4.4 Key activities in the life cycle of teams.

Source: Adapted from Guido Hertel, Susanne Geister, and Udo Konradt, “Managing Virtual Teams: A Review of Current Empirical Research,” Human
Resource Management Review 15, no. 1 (2005), 69–95.

Driver Effect
Shift to knowledge-based work Eliminates requirement that certain work be performed in a specific place

Changing demographics and lifestyle preferences Provides workers geographic and time-shifting flexibility

New technologies with enhanced bandwidth Makes remotely performed work practical and cost effective

Reliance on web Provides employees the ability to stay connected to coworkers and
customers and to access work-related apps, even on a 24/7 basis

Energy concerns Reduces the cost of commuting (for telecommuters), energy costs
associated with real estate (for companies), and travel costs (for companies
and for people on virtual teams)

FIGURE 4.5 Driving factors of remote work and virtual teams.

employees can create, assimilate, and distribute knowledge as effectively from home as they can from
an office.
The second factor is that remote workers and virtual team members often shift the time of their work to
accommodate their lifestyles. For instance, parents modify their work schedules to allow time to take their
children to school and attend extracurricular activities. Teleworking provides an attractive alternative for
parents who might otherwise decide to take leaves of absence from work for child rearing. Teleworking
also enables people who are housebound by illness, disability, or the lack of access to transportation to
join the workforce.
Remote work also provides employees and virtual team members enormous geographic flexibility.
The freedom to live where one wishes, even at a location remote from one’s corporate office, can boost
employee morale and job satisfaction. As a workplace policy, it may also lead to improved employee
retention. For example, American Express employees used the BlueWork program as part of its recruiting
pitch. Further, productivity and employee satisfaction for those on the BlueWork program were markedly
higher, and voluntary turnover was down. Many employees can be more productive at home, and they
actually work more hours than if they commuted to an office. Furthermore, impediments to productivity
such as traffic delays, canceled flights, bad weather, and mild illnesses become less significant. Companies
enjoy this benefit, too. Those who build in remote work as a standard work practice are able to hire
employees from a much larger talent pool than those companies that require geographical presence.
The third driving factor is that the new technologies, which make work in remote locations viable, are
becoming better, cheaper, and more widely available. Telecommunication and computer processing speeds
have increased exponentially at the same time that their costs have plummeted. The oft-cited time frame
involved in this progression is a doubling of computer capabilities (such as speed) every 18 months.30
The drastic increase in capabilities of portable technologies enables effective and productive mobile work
and provides integration among applications. Virtual team members can use Skype, WebEx, Zoom, or
any number of video and audio conferencing technologies to work together. Cloud computing also has

30
Gordon Moore, head of Intel, observed that the capacity of microprocessors doubled roughly every 12 to 18 months. Even though this
observation was made in 1965, it still holds true. Eventually, it became known in the industry as Moore’s law.
 Where Work Is Done and Who Does It: Mobile and Virtual Work Arrangements 93

contributed to this trend because applications are moved from computers housed in company data centers
to web-based hosts such as Amazon Web Services (AWS), Rackspace, and other service providers.
A fourth driving factor is the increasing reliance on web-based technologies by all generations, especially
younger generations, such as Generation Y and the Millennials. The younger generations are at ease with
web-based social relationships and are adept at using social networking tools to grow relationships with
coworkers and customers. Face-to-face work arrangements may not be necessary for these employees to
build productive connections. Cloud-based applications and storage make access to crucial office systems
easy from anywhere. Further, as more and more organizations turn to flexible working hours in programs
such as BlueWork implemented by American Express and as 24/7 becomes the norm in terms of service,
the web becomes the standard platform to allow employees to respond to work’s increasing demands.
A fifth factor is the increasing emphasis on energy conservation. As concerns about greenhouse gasses,
carbon footprints, and even potential future gasoline price increases, employees are looking for ways to be
more responsible and frugal at the same time. Teleworking is quite appealing in such a scenario, especially
when public transportation is not readily available. Companies can also experience lower energy usage
and costs from telecommuting. SAP reduced its global greenhouse footprint by encouraging employees to
shift their commuting behavior. As a result of these ongoing efforts, emissions from employees’ commutes
dropped. In addition to teleworking and encouraging the use of mass transit and carpooling, SAP also
provided employees information on their carbon footprint from commuting through a new internal
dashboard aimed at ensuring greater transparency and accountability.31
Many employees no longer need to be tied to official desks. If they do have offices, they tend to be
smaller than in pre-telecommuting days. When telecommuters do come into the company’s office, they
might not work in their own permanently assigned office. Rather they might “hotel” by sharing office
“flex” space with other telecommuters who also aren’t in the office every workday. Thus, the real estate
needs of their employers are shrinking, and companies are saving costs by reducing the office space they
own or rent. This reduction lowers their energy needs by no longer needing to heat, cool, or maintain
these spaces. Companies are realizing that they can comply with the Clean Air Act and be praised for their
“green computing” practices at the same time they are reaping considerable cost savings.

A Closer Look: Who Teleworks? A Look at Global

Teleworking Habits
Flexible work arrangements have been around for decades, but as technologies enable new capabili-
ties for work away from a traditional office, telework has been gaining popularity. In 2015, advisory
services firm EY surveyed about 9,700 employees in the eight top economies across the globe—
the United States, United Kingdom, India, Japan, China, Germany, Mexico, and Brazil. The firm
found flexible work arrangements varied significantly by country. The report cited countries with
the highest and lowest percentages of employees with flexible work schedules. Germany (70%),
India (61%), and the United States (61%) had the highest percentage and Japan (30%) and China
(22%) had the lowest. Some of these findings are supported by an earlier study by Cisco that found
a large percentage of people in Japan (56%) thought they had to come into the physical office to be
productive, whereas a very small percentage of Indians (7%) felt they had to be tethered to a desk in
a physical office. They could be productive when staying connected to their workplaces through a
variety of devices including their laptops, tablets, and smartphones.
Source: “EY Global Generations: A Global Study on Work-Life Challenges across Generations,” EY.com, http://
www.ey.com/Publication/vwLUAssets/EY-global-generations-a-global-study-on-work-life-challenges-across-
generations/$FILE/EY-global-generations-a-global-study-on-work-life-challenges-across-generations.pdf (accessed
August 26, 2015), 6; “The Cisco Connected World Report,” October 2010, http://newsroom.cisco.com/dlls/2010/ekits/
ccwr_final.pdf (accessed February 4, 2012); Cisco Connected World Technology Report, 2011 Findings, http://www.
cisco.com/en/US/netsol/ns1120/index.html#~2011 (accessed August 25, 2015); and “Air, Food, Water, Internet—Cisco
Study Reveals Just How Important Internet and Networks Have Become as Fundamental Resources in Daily Life,”
http://newsroom.cisco.com/press-release-content?type=webcontent&articleId=474852 (accessed August 25, 2015).

31
SAP Sustainability Report, Greenhouse Gas Footprint, http://www.sapsustainabilityreport.com/greenhouse-gas-footprint (accessed
February 2, 2012).
94 DIGITAL SYSTEMS AND THE DESIGN OF WORK

Advantages and Disadvantages of Remote Work

There are clearly advantages to remote work. Employees have greater flexibility in where they work.
Employees often find that they are more productive when working in an environment of their choosing
without the distractions of the office or around sick coworkers. Homebound individuals can work for a
company that embraces remote work. Employees also seem to have higher morale and lower absenteeism
in part because they can work from wherever they are, wearing whatever clothes they want. Employers
find advantages of enabling remote work compelling, too. They are able to hire skilled employees who do
not live in the geographic area of the office. And employers often find that it is less expensive to provide a
remote employee the tools needed than to pay for the office space to house the employee.
There are also disadvantages associated with remote work. Remote employees often report that work–
life balance suffers. While many enjoy the flexibility of working around the schedules of children or other
family members, they paradoxically find it difficult to separate work from their home life. Consequently,
they may work many more hours than the standard nine-to-five employee or experience the stress of trying
to separate work from play.
Remote work challenges managers when it comes to controlling their subordinates, evaluating
their performance, and determining their compensation. Managers of remote workers must evaluate
employee performance in terms of results or deliverables, and not behaviors. Virtual offices make it more
difficult for managers to appreciate the skills and efforts of the people reporting to them, which in turn
makes it more difficult to evaluate their performance and reward them fairly. Managers must rely heavily
on the remote worker’s self-discipline to ensure that work is done. As a result, managers may feel they
are losing control over their employees, and some remote employees do, in fact, abuse their privileges.
Managers accustomed to traditional work models in which they are able to exert control more easily may
strongly resist remote working. In fact, managers are often the biggest impediment to implementing remote
work programs.
Self-discipline is a key concern for many remote workers. Workers who go to an office or who must
make appearances at customer locations have a structure that gets them up and out of their home. But
remote workers find that working from home, in particular, is full of distractions such as personal phone
calls, visitors, Facebook and other social networking sites, and inconvenient family disruptions. A remote
worker must carefully set up a home/work environment and develop strategies to enable quality time for
the work task.
Remote work requires special managerial planning and communication activities. Managers must
plan (and put into place) the necessary business processes and support tasks for remote workers, as
well as coordinate schedules. They must ensure adequate communication among all workers, establish
policies to support communications, and provide remote workers with compatible, secure communication
technologies.
Working remotely can disconnect employees from their company’s culture and make them feel isolated.
The casual, face-to-face encounters that take place in offices transmit extensive cultural, political, and
other organizational information. These “water cooler” encounters are lost to an employee who seldom, if
ever, works at the office. Consequently, remote workers need to undertake special efforts to stay connected
by using technologies such as instant messaging or participating in telephone calls/conferences, e-mail,
social networking, blogs, or even video conferencing. The most successful remote work arrangements
typically include regular visits to the office to solidify personal connections.
Not all jobs are suitable for remote work. Some jobs, such as server in a restaurant, a clerk in a grocery
store, and a facilities manager in a high-rise building, require the employee to be at the work location.
Further, new employees who need to be socialized into the organization’s practices and culture are not
good candidates for remote work. Finally, some organizations have cultures that do not support remote
workers.
Remote work also raises the specter of offshoring, or foreign outsourcing of jobs once performed
internally in the organization. Once a company establishes an infrastructure for remote work, the work
often can be performed abroad as easily as domestically. U.S. immigration laws limit the number of
foreigners who may work in the United States. However, no such limitations exist on work performed
outside this country by employees who transmit their work to the United States electronically. Because
such work is not subject to minimum wage controls, companies may have a strong economic incentive
to outsource work abroad. They find it particularly easy to outsource clerical work related to electronic
production, such as data processing and computer programming. (Sourcing is further discussed in
Chapter 10.)
 Where Work Is Done and Who Does It: Mobile and Virtual Work Arrangements 95

Advantages of Remote Working Potential Problems

Reduced stress due to increased ability to meet schedules and to Increased stress from inability to separate work life from
have fewer work-related distractions home life
Higher morale; lower absenteeism Harder for managers to control, evaluate, and reward
Geographic flexibility for worker; capitalization on distant performance
expertise for organization Remote workers may become disconnected from company
Higher personal productivity culture
Inclusion of housebound individuals in the workforce Lack of suitability for all jobs or employees

Very informal dress is acceptable Remote workers may be more easily replaced by offshore
workers
Harder to achieve high security

FIGURE 4.6 Some advantages and disadvantages of remote work.

Security is another issue for remote workers. The concern is that they might access office systems from
unsecure remote locations or networks, and inadvertently introduce a bug or malware, creating a threat
to other office systems. Further, as demonstrated by the Department of Veterans Affairs (VA) employee
whose laptop carrying unencrypted, sensitive personal information on more than 2.2 million active-duty
military personnel was stolen from the employee’s home, remote workers can be the source of security
breaches.32 It is impossible for organizations to be immune from breaches and make remote workers totally
secure. Nonetheless, general managers need to assess the areas and severity of risk and take appropriate
steps, via policies, education, and technology, to reduce the risks and make remote workers as secure as
possible. IS leaders must provide many levels of security to sense and respond to threats. (IT security is
discussed more fully in Chapter 7.) Benefits and potential problems associated with remote working are
summarized in Figure 4.6.

Advantages and Disadvantages of Virtual Teams

Virtual teams clearly offer advantages in terms of expanding the knowledge base through team member-
ship. Thanks to new and ever-emerging communication and information technologies, managers can draw
team members with needed skills or expertise from around the globe without having to commit to huge
travel expenses. Further, virtual teams can benefit from following the sun. One classic example of this can
be found in software development. London members of a virtual team of software developers at Tandem
Services Corporation initially code a project and transmit its code each evening to a U.S. team for testing.
The U.S. team forwards the tested code to Tokyo for debugging. London team members start their next day
with the code debugged by the Japanese team, and another cycle is initiated.33 Increasingly, growing pres-
sure for faster turnaround time for systems has resulted in systems development by global virtual teams
whose members are located around the world.
There are some clear disadvantages to highly virtual teams. For example, different time zones, although
helpful when following the sun, can work against virtual team members when they are forced to stay up
late or work in the middle of the night to communicate with team members in other time zones. There
are also a considerable number of challenges that if not correctly managed could turn into disadvantages.
A summary of these VT challenges in comparison with co-located teams can be found in Figure 4.7.

Managing Remote Workers and Virtual Teams

Managers cannot manage remote workers or virtual teams in the same way that they manage in-office
workers or co-located teams. The differences in management control activities are particularly pronounced
because managers cannot observe the actual behavior of remote workers or virtual team members. Thus,
monitoring behavior is likely to be more limited. As stated earlier, performance for both remote workers
and virtual teams is more likely to be evaluated through outcome controls rather than behavior controls.
Because team members and remote workers are dispersed, providing feedback is especially important—
not just at the end of a project, but throughout the workers’ employment and the team’s life.

32
Robert Lemos, “VA Data Theft Affects Most Soldiers,” June 7, 2006, http://www.secruityfocus.com/brief/224 (accessed May 7, 2012).
Marie-Claude Boudreau, Karen Loch, Daniel Robey, and Detmar Straub, “Going Global: Using Information Technology to Advance the
33

Competitiveness of the Virtual Transnational Organization,” Academy of Management Executive 12, no. 4 (1998), 120–28.
96 DIGITAL SYSTEMS AND THE DESIGN OF WORK

Issue Virtual Teams (VT) Challenges Co-located Teams Comparison

Communication • Difficulties in terms of scheduling meetings and interactions • Co-located in same time zone.
• Increased inefficiencies when passing work between time zones Scheduling is less difficult
• Altered communication dynamics with limited facial expressions, • Use of richer communication media,
vocal inflections, verbal cues, and gestures including face-to-face discussions

Technology • Need for proficiency across wide range of technologies • Support for face-to-face interaction
• Automatic creation of electronic repository to build organizational without replacing it
memory • Electronic communication skills not
• Need for ability to align group structure and technology with the needed by team members
task environment • Task technology fit less critical

Team Diversity • Harder to establish a group identity • Group identity easier to create
• Require better communication skills • Easier communication among
• More difficult to build trust, norms, and shared meanings members
about roles because team members have fewer cues about their
teammates’ performance
• More likely to have different perceptions about time and deadlines

FIGURE 4.7 Challenges facing highly virtual teams in comparison to co-located teams.

Compensation for virtual teams must be based heavily on the team’s performance and ability to reach
its goal rather than on individually measured performance. Compensating team members for individual
performance may result in “hot-rodding” or lack of cooperation among team members. Organizational
reward systems must be aligned with the accomplishment of desired team goals. This alignment is espe-
cially difficult when virtual team members belong to different organizations, each with her or his own
unique reward and compensation system, each of which may affect individual performance in a different
way. Managers need to be aware of differences and discover ways to provide motivating rewards to all
team members. Further, policies about the selection, evaluation, and compensation of virtual team mem-
bers may need to be enacted.
In addition to management control challenges, there are other challenges as included in Figure 4.7. The
rest of this section is devoted to managing the challenges.

Managing Communication Challenges

Because virtual teams and remote workers communicate differently than workers in the office, managers
must make sure the communication policies, practices, and norms support these work arrangements. For
example, holding a team meeting in the office and expecting remote members to listen in require the man-
ager to prepare differently for the meeting. Any presentation slides to be used in the meeting must also be
shared with the remote participants, either over a video conference with meeting software or beforehand.
When most coworkers are in the office and only one or two are dialing in from other locations, the remote
participants miss all the nonverbal communication that takes place in the meeting room. Soft-spoken
individuals are often difficult to hear. Managers must make sure key messages are being conveyed to the
remote participants or the results of the meeting are suboptimal.
Team leaders may decide to initiate or supplement a team’s virtual activity with a face-to-face meeting
so that the seeds of trust can be planted and team members feel as if they know one another on a more
personal basis. Face-to-face meetings indeed appear to contribute to successful global virtual teams. An
in-depth study of three global virtual teams found that the two effective teams created a rhythm organized
around regularly scheduled face-to-face meetings coupled with synchronous (i.e., everyone is present at
the same time) virtual meetings as needed. Before each meeting, there was a flurry of communication and
activity as team members prepared for the meeting. After the meeting, there were many follow-up mes-
sages and tasks. The ineffective team did not demonstrate a similar pattern.34 Because not all teams can
meet face-to-face, well-managed synchronous meetings using video teleconferencing or in a virtual world
can activate the rhythm and accelerate the workflow.

34
M. L. Maznevski and K. Chudoba, “Bridging Space over Time: Global Virtual Team Dynamics and Effectiveness,” Organization Science
11, no. 5 (2000), 373–92.
 Where Work Is Done and Who Does It: Mobile and Virtual Work Arrangements 97

Because team leaders cannot always see what their team members are doing or whether they are experi-
encing any problems, frequent communications are important. If remote employees or team members are
quiet, the team leader must reach out to them to identify their participation and ensure that they feel their
contributions are appreciated. Further, team leaders can scrutinize the team’s asynchronous communica-
tions (i.e., communications that are sent as time permits rather than when receiver and sender are simulta-
neously present) and its repository to evaluate and give feedback about each team member’s contributions.
Even when a majority of team members are in one location, the team leader should rotate meeting times
to alternate the convenience among team members. The rule of thumb is that “more communication is bet-
ter than less” because it is very difficult to “overcommunicate.” Managers and team leaders with remote
participants must make sure to think about how their remote colleagues are receiving the information they
need, not just how the managers are communicating it.

Managing Technology Challenges

Information and communication technologies are at the heart of the success of remote work and virtual
team accomplishments. However, managers must ensure that their remote colleagues have access to the
technologies and support they need. All team members must have the ability to connect to the information
sources and communications pathways used by the group. Well-designed web-based conferencing appli-
cations make this easier because any device connected to the Internet can access them. Managers must
make sure meetings over video or audio conference tools are well coordinated and all attendees have the
right access codes and meeting times. Time zone differences often confuse this issue, so it is critical to
make sure everyone knows the right time for a meeting in their time zone.
Support processes for technologies must also be designed with remote employees in mind. If the only
support for them is in the office, they may find it difficult, if not impossible, to access the help they need.
Bringing a laptop to the office during normal business hours may not be possible if the remote worker is
hundreds or thousands of miles away. Processes must be designed to accommodate the remote employee
or team member.
Managers must ensure that all employees and team members have the tools they need to do their
jobs. That might mean providing seamless telephone transfers, desktop support, network connectivity, and
security support to the remote workers. How and where information is stored must be considered because
all workers must have access to the files and applications they need to do their work. And, of course, the
importance of security for remote work cannot be overstated. A good rule of thumb is to design work
processes so they work for remote workers, and consider the office as just another location. If the process
works for the remote workers, it most likely will work for someone in the office, but the converse is not
necessarily true. Unforeseen problems can develop for those remotely located.
Further, managers must also provide the framework for using the technology. Policies and norms or
unwritten rules about how all employees should use the technology to work with one another must be
established.35 These include norms about telephone, e-mail, and videoconferencing etiquette (i.e., how
often to check for messages, the maximum time to wait to return e-mails, and alerting team members
about absences or national holidays), work to be performed, and so on. Such norms are especially impor-
tant when team members are not in the same office and cannot see when team members are unavailable.
For example, leaving a paper note on someone’s desk works fine if that person is in the office, but that
option does not exist for remote participants. Leaving an e-mail or sending texts may be a better alternative
because both work for everyone.

Managing Diversity Challenges

Managers may also seek to provide technologies to support diverse team member characteristics. For
example, team members from different parts of the globe may have different views of time. Team members
from Anglo-American cultures (i.e., United States, United Kingdom, Canada, Australia, New Zealand)
may view time as a continuum from past to present and future. For such team members, each unit of time
is the same. These team members are likely to be concerned with deadlines and often prefer to complete
one task before starting another (i.e., they are monochronic). For team members who are conscious of

35
C. Saunders, C. Slyke, and D. R. Vogel, “My Time or Yours? Managing Time Visions in Global Virtual Teams,” Academy of Management
Executive 18, no. 1 (2004), 19–31.
98 DIGITAL SYSTEMS AND THE DESIGN OF WORK

deadlines, planning and scheduling software may be especially useful. In contrast, team members from
India often have a cyclical view of time. They do not get excited about deadlines, and there is no hurry
to make a decision because it is likely to cycle back—at which time the team member may be in a better
position to make the decision. Many people from India tend to be polychronic, preferring to do several
activities at one time. Team members who are polychronic may benefit from having instant messaging or
instant video chats available to them so that they can communicate with their teammates and still work on
other tasks.36
In addition to providing the appropriate technologies, managers with team members who have different
views of time need to be aware of the differences and try to develop strategies to motivate those who are
not concerned with deadlines to deliver their assigned tasks on time. Or the managers may wish to assign
these team members to do tasks that are not sensitive to deadlines.
Of course, views of time are only one dimension of diversity. Although team diversity has been dem-
onstrated to lead to more creative solutions, it can also make it harder for team members to learn to com-
municate, trust one another, and form a single group identity. Through open communications, managers
may be able to uncover and deal with other areas of diversity, such as culture, training, gender, personality,
position, and language, that positively or negatively affect the team.37 Managers may establish an expertise
directory at the start of the team’s life or encourage other ways of getting team members to know more
about one another. The rule of thumb here is to not assume that a team will work just because it has been
created by management. Specific thought must be giving to helping the team members function together
and embrace, rather than reject, the differences diversity brings to the table.

Robots in the Workplace

Up until now our discussion about the “who” doing the work has been either individuals or teams of indi-
viduals. However, increasingly the work is being done by robots (which are technically “what,” though
sometimes they are designed to have features that look very human-like). A robot is “a reprogramma-
ble, multifunctional manipulator designed to move material, parts, tools, or specialized devices through
variable programmed motions for the performance of a task.”38 Though robots have been around since
Archytas created a mechanical bird in the third century, they did not become part of the assembly line
until General Motors (GM) put them to work in 1961.39 Since then they continue to be used heavily in
automobile manufacturing, though other businesses and organizations use them in myriad ways ranging
from executing warehouse functions, serving as companions to occupants of Japanese retirement homes,
detonating bombs, working on the International Space Station, and even performing minimally invasive
laparoscopic surgery.
Robots offer many advantages. They can perform tasks that are “dangerous, dirty, or dull”; they can
lift and move heavy objects and place them with an accuracy within minute fractions of a millimeter; they
can reliably perform boring tasks over and over again—with enviable consistency. Their capabilities are
increasing in terms of variability and complexity at the same time that their price tag is dropping. In the
past 30 years, the price of a typical robot has halved both in real terms and in relation to labor costs. 40 Fur-
ther, the efficiencies, increased storage, labor savings, and other operational improvements that their use
engenders often produce considerable cost savings. Dynamics, a manufacturer of molds for mass produc-
ing small plastic and metal parts, reported: “The robot’s price tag was $35,000 and within two months it
paid for itself by quadrupling the efficiency of the press and eliminating scrap.”41

36
Ibid.
37
Terri R. Kurtzberg and Teresa M. Amabile, “From Guilford to Creative Synergy: Opening the Black Box of Team-Level Creativity,”
Creativity Research Journal 13, no. 3-4 (2001), 285–94.
38
J. E. Hamilton and P. A. Hancock, “Robotics Safety: Exclusion Guarding for Industrial Operations,” Journal of Occupational Accidents 8,
no. 1-2 (1986), 69–78, page 70.
39
A. F. Rutkowski and C. Saunders, Emotional and Cognitive Overload: The Dark Side of Information Technology (Routledge, 2018).
40
Jonathan Tilly, “Automation, Robotics and the Factory of the Future, McKinsey, September 2017,” https://www.mckinsey.com/business-
functions/operations/our-insights/automation-robotics-and-the-factory-of-the-future (accessed March 1, 2019).
Kim Tingley, “Learning to Love Our Robot Co-workers,” New York Times, February 23, 2017, https://www.nytimes.com/2017/02/23/
41

magazine/learning-to-love-our-robot-co-workers.html (accessed March 1, 2019).

 Gaining Acceptance for IT-Induced Change to Work 99

As if their capabilities and cost savings are not enough, robots are also becoming smarter thanks to
machine learning and data-driven analytics. For example, industrial robots can use spectral analysis to
check the quality of a weld as it is being made. This increases the accuracy of the weld and decreases the
effort spent on post-manufacture inspection.42
Robots do have disadvantages, most notably in relation to safety, integration into the workplace, and
negative impact on human jobs. While a number of deaths have been attributed to robots, their incidence
has dropped drastically as robot manufacturers develop proximity sensing systems to prevent robots from
colliding with humans. Further, robots cannot just be placed on factory floor and expected to immediately
start generating savings. Rather, employees need to learn to work with and around them. Probably the
greatest disadvantage associated with robots is the fear that they will generate massive job losses and con-
tribute to a growing economic divide. “There’s never been a worse time to be a worker with only ‘ordinary’
skills and abilities to offer, because computers, robots and other digital technologies are acquiring these
skills and abilities at an extraordinary rate,” state Erik Brynjolfsson and Andrew McAfee in their 2014
book The Second Machine Age.43
Consider the advantages and disadvantages that the use of robots has brought to Amazon. Amazon has over
100,000 robots worldwide in its warehouses. The robots pick and move the inventory needed to fill customer
orders.44 The Amazon warehouses that use robots have realized a 50% increase in storage efficiency.45 Robots
have also dramatically increased the efficiency of the humans at these warehouses. Despite initial concerns,
Amazon has not laid off any workers (though robots and its automated systems have triggered layoffs in
the retail sector). In fact, a number of high-skilled jobs (e.g., designing and training the robots) and middle-
skilled jobs (repairing the robots) have been created. Robots rule the core of the Amazon warehouse while
humans have learned to “dance seamlessly” around them on the periphery of the facility. The company’s best
workers are called “Amabots” since they are so at one with the system.46 However, it is not a completely rosy
picture on the Amazon robot scene. Amazon has been criticized for putting productivity over worker safety.47
Still it appears that Amazon considers the advantages of robots clearly outweigh the disadvantages.

Gaining Acceptance for IT-Induced Change to Work

The changes described in this chapter no doubt alter the frames of reference of organizational employees
and may be a major source of concern for them. Employees may resist the changes if they view the changes
as negatively affecting them. For example, in data-driven algorithmic-driven systems that incorporate
machine learning, the employees might notice that new systems are “learning” from bad data. Bad results
will erode their trust in the new system and result in their resisting the change.
In the case of a new information system that they do not fully understand or are not prepared to operate,
employees may resist in several ways:
• They may deny that the system is up and running.
• They may sabotage the system by distorting or otherwise altering inputs.
• They may try to convince themselves, and others, that the new system really will not change the status quo.
• They may refuse to use the new system when its usage is voluntary.

42
Jonathan Tilly, “Automation, Robotics and the Factory of the Future,” McKinsey, September 2017, https://www.mckinsey.com/business-
functions/operations/our-insights/automation-robotics-and-the-factory-of-the-future (accessed March 1, 2019).
43
Angel Gonzalez, “Amazon’s Robots: Job Destroyers or Dance Partners?” The Seattle Times, August 11, 2017, https://www.seattletimes.
com/business/amazon/amazons-army-of-robots-job-destroyers-or-dance-partners/ (accessed March 1, 2019).
44
Aaron Brown, “Rise of the Machines? Amazon’s Army of More Than 100,000 Warehouse Robots Still Can’t Replace Humans Because
They Lack Common Sense,” DailyMailonline.com, June 5, 2019, https://www.dailymail.co.uk/sciencetech/article-5808319/Amazon-
100-000-warehouse-robots-company-insists-replace-humans.html (accessed March 1, 2019).
45
Angel Gonzalez, “Amazon’s Robots: Job Destroyers or Dance Partners?” The Seattle Times (August 11, 2017), https://www.seattletimes.
com/business/amazon/amazons-army-of-robots-job-destroyers-or-dance-partners/ (accessed March 1, 2019).
46
Aaron Brown, “Rise of the Machines?”
47
Jasper Jolly, “Amazon Robot Sets Off Bear Repellant, Putting 24 Workers in Hospital,” The Guardian, December 6, 2019, https://www.
theguardian.com/technology/2018/dec/06/24-us-amazon-workers-hospitalised-after-robot-sets-off-bear-repellent (accessed March 1, 2019).
100 DIGITAL SYSTEMS AND THE DESIGN OF WORK

Lewin’s Stage Unfreezing Changing Refreezing

Definition Creating motivation to change Providing stakeholders with new Reinforcing change by integrating
information, systems, products, or stakeholders’ changed behaviors
services and attitudes into new operations
resulting from change

Kotter’s Steps 1. Establish a sense of urgency: 5. Empower broad-based action: 8. Anchor new approaches
Create a compelling reason Encourage risk-taking and in the culture: Reinforce
why change is needed. creative problem solving to change by highlighting areas
2. Create the guiding coalition: overcome barriers to change. in which new behaviors
Select a team with enough 6. Generate short-term wins: and processes are linked to
expertise and power to lead Celebrate short-term success.
the change. improvements and reward
3. Develop a vision and strategy: contributions to change effort.
Use the vision and strategic 7. Consolidate gains and produce
plan to guide the change more change: Use credibility
process. from short-term wins to
4. Communicate the change promote more change so that
vision: Devise and implement change cascades throughout the
a communication strategy to organization.
consistently convey the vision.

FIGURE 4.8 Stages and steps in change management.

Source: Adapted from John Kotter, Leading Change (Boston, MA: Harvard Business School Press, 1996).

Managing Change
To help avoid these resistance behaviors, John Kotter48 builds upon Kurt Lewin’s49 change model of
unfreezing, changing, and refreezing. Kotter recommends eight specific steps to bring about change.
Kotter’s steps are related to Lewin’s changes and listed in Figure 4.8.
Managers can keep these eight steps in mind as they introduce change into their workplaces. It is
important for managers to make clear why the change is being made before it is implemented, and they
must follow the change with reinforcement behaviors such as rewarding those employees who have
successfully adopted new desired behaviors.

Technology Acceptance Model and Its Variants

To avoid the negative consequences of resistance to change, those implementing change must actively
manage the change process and gain acceptance for new IS. To help explain how to gain acceptance
for a new technology, Professor Fred Davis and his colleagues developed the Technology Accept-
ance Model (TAM). Many variations of TAM exist (i.e., TAM2, UTAUT), but its most basic form is
displayed on the right-hand side in Figure 4.9. TAM suggests that managers cannot get employees to
use a system until they want to use it. To convince employees to want to use the system, managers
may need to employ unfreezing tactics to change employee attitudes about the system. Attitudes may
change if employees believe that the system will allow them to do more or better work for the same
amount of effort (perceived usefulness), and that it is easy to use. Training, documentation, and user
support consultants are external variables that may help explain the usefulness of the system and make
it easier to use.
The left-hand side of Figure 4.9 provides four categories of determinants of perceived usefulness and
perceived ease of use from the point of view of organizational users. Specifically, they are individual
differences (e.g., gender, age), system characteristics (e.g., output quality and job relevance that help
individuals develop favorable or unfavorable views about the system), social influence (e.g., subjective

48
John Kotter, Leading Change (Boston, MA: Harvard Business School Press, 1996).
49
Kurt Lewin, “Frontiers in Group Dynamics II. Channels of Group Life; Social Planning and Action Research,” Human Relations 1, no. 22
(1947), 143–53.
 Summary 101

Individual Perceived
Differences Usefulness

System
Characteristics
Behavioral Use
Intention Behavior
Social
Influence

Facilitating Perceived
Conditions Ease of Use
Technology Acceptance Model (TAM)

FIGURE 4.9 Simpli ed technology acceptance model (TAM3).

Source: Viswanath Venkatesh and Hillol Bala, “Technology Acceptance Model 3 and a Research Agenda on Interventions,” Decision Sciences 39, no.
2 (2008), 276.

norms), and facilitating conditions (e.g., top management support). TAM assumes that system use is under
the control of the individual users. When employees are mandated to use the system, they may use it in
the short run, but over the long run, negative consequences of their resistance may surface. Thus, gaining
acceptance of the system is important, even in those situations where it is mandated.

SUMMARY

• The nature of work is changing, and IT supports, if not propels, these changes.
• Communication and collaboration are vital for today’s work. Technology to support communication
includes e-mail, texting (SMS), instant messaging (IM), video conferences, and virtual private networks
(VPN). Technology to support collaboration includes social networking sites, web logs (blogs), wikis,
teleconference systems, groupware, microblogs, virtual meeting rooms, team collaboration software
suites, and Internet-sharing sites.
• IT affects work by creating new work, creating new working arrangements, and presenting new manage-
rial challenges in employee supervision, evaluation, compensation, and hiring.
• Newer approaches to management re ect increased use of computer and IT in hiring and supervising
employees, a more intense focus on output (compared to behavior), and an increased team orientation.
• The shift to knowledge-based work, changing demographics and lifestyle preferences, new technolo-
gies, growing reliance on the web, and energy concerns contribute to the increase in remote work and
virtual teams.
• Companies nd that building teleworking capabilities can be an important tool for attracting and retain-
ing employees, increasing their productivity, providing exibility to otherwise overworked individuals,
reducing of ce space and associated costs, responding to environmental concerns about energy con-
sumption, and complying with the Clean Air Act. Alternative work arrangements also promise employ-
ees potential bene ts: schedule exibility, higher personal productivity, less commuting time and fewer
expenses, and increased geographic exibility.
• Disadvantages of remote work include increased stress from trying to maintain work/life balance; dif-
culties in planning, communicating, and evaluating performance; feelings of isolation among employ-
ees; easier displacement of employees by offshoring; and limitations of jobs and employees in its
application.
102 DIGITAL SYSTEMS AND THE DESIGN OF WORK

• Virtual teams can be de ned as two or more people who (1) work together interdependently with mutual
accountability for achieving common goals, (2) do not work in either the same place and/or at the same
time, and (3) must use electronic communication technology to communicate, coordinate their activi-
ties, and complete their team’s tasks. They are an increasingly common organizational phenomenon and
must be managed differently than co-located teams.
• Managers of remote workers and highly virtual teams must focus on overcoming the challenges of com-
munication, technology, and diversity of team members.
• Robots are becoming more common in the workplace because of their many advantages such as greater
ef ciencies and cost savings. Some disadvantages have also surfaced: safety, integration into the work-
place and negative impact on human jobs.
• To gain acceptance of a new technology, potential users must exhibit a favorable attitude toward the
technology. In the case of information systems, the users’ beliefs about its perceived usefulness and
perceived ease of use color their attitudes about the system. Kotter provides some suggested steps for
change management that are related to Lewin’s three stages of change: unfreezing, change, and refreez-
ing.

KEY TERMS

behavior controls, 89 offshoring, 94 robot, 98

input controls, 89 outcome controls, 89 teleworking, 91
mobile workers, 91 remote workers, 91 virtual teams, 91

DISCUSSION QUESTIONS

1. Why might an employee resist the implementation of a new technology? What are some of the possible
consequences of asking an employee to use a computer or similar device or to interface with a robot in
his or her job?
2. What do you predict will be the impact of artificial intelligence on knowledge workers? How can a
manager ensure that the impact is positive rather than negative?
3. What currently emerging technologies do you predict will show the most impact on the way work is
done? Why?
4. Given the growth in teleworking, how might offices physically change in the coming years? Will offices
as we think of them today exist by 2030? Why or why not?
5. How is working at an online retailer different from working at a brick-and-mortar retailer? What types
of jobs are necessary at each? What skills are important?
6. Paul Saffo, former director of the Institute for the Future, noted: “Telecommuting is a reality for many
today, and will continue to be more so in the future. But beware, this doesn’t mean we will travel less.
In fact, the more one uses electronics, the more they are likely to travel.”50 Do you agree with this state-
ment? Why or why not?
7. The explosion of information-driven self-serve options in the consumer world is evident at the gas sta-
tion where customers pay, pump gas, and purchase a car wash without ever seeing an employee; in the
retail store, such as Walmart, Home Depot, and the local grocery where self-service checkout stands
mean that customers can purchase a basket of items without ever speaking to a sales agent; at the airport
where customers make reservations and pay for and print tickets without the help of an agent; and at the
bank, where ATMs have long replaced tellers for most transactions. But a backlash is coming, experts

50
“Online Forum: Companies of the Future,” http://www.msnbc.com/news/738363.asp (accessed June 11, 2002).
 Discussion Questions 103

predict. Some say that people are more isolated than they used to be in the days of face-to-face service,
and they question how much time people are really saving if they have to continually learn new pro-
cesses, operate new machines, and overcome new glitches. Labor-saving technologies were supposed
to liberate people from mundane tasks, but it appears that these technologies are actually shifting some
tasks to the customer. On the other hand, many people like the convenience of using these self-service
systems, especially because it means customers can visit a bank for cash or order books or gifts from
an online retailer 24 hours a day. Does this mean the end of “doing business the old-fashioned way”?
Will this put a burden on the elderly or the poor when corporations begin charging for face-to-face
services?51
8. Would you stay in a hotel room that cleans itself? The chapter discusses the Technology Acceptance
Model, which was derived at MIT in the context of IT. However, other technologies might face resist-
ance as well. Copenhagen’s Hotel Ottilia has introduced a self-disinfecting technology (CleanCoat)
into its rooms and suites.52 CleanCoat is a Teflon-like spray that breaks down harmful microbes, as well
as purifies and deodorizes the air in a room for up to a year. It is undetectable by sight or scent and is
activated by sunlight. The main ingredient of CleanCoat is a naturally occurring oxide, titanium diox-
ide, which is found in sunscreen and food additives. Hotel Ottilia has justified the hefty purchase price
($2,500 per room) on the basis that it reduces the time the housekeeping staff spend cleaning the room
(i.e., vacuuming, dusting, and making beds) by 50%. An added benefit is that the housekeeping staff
can avoid smelling bleach and disinfectants. Knowing this, would you stay at Hotel Ottilia (or another
hotel with this self-cleaning system)? Why or why not? Do you believe that resistance to IT is more
difficult or easier to conquer than resistance to physical technology? Do you think most travelers will
resist this change? Why or why not? A technology that helps hotel customers clean their own rooms is
CleanseBot, a packable cleaning robot the about size of a hockey puck that is designed to kill E. coli on
a hotel room’s most germ-ridden surfaces.53 Would you use CleanseBot in your hotel rooms? Why or
why not?

51
Stevenson Swanson, “Are Self-Serve Options a Disservice?” Chicago Tribune, May 8, 2005, Section H, 1d.
52
Caitlin Morton, “Would You Stay in a Hotel Room That Cleans Itself?” Conde Nast Traveler, February 26, 2019, https://www.cntraveler.
com/story/would-you-stay-in-a-hotel-room-that-cleans-itself (accessed February 28, 2019).
53
Nikki Ekstein, “This Hotel Has Rooms That Clean Themselves,” February 21, 2019, https://www.bloomberg.com/news/articles/2019-02-21/
copenhagen-s-newest-hotel-has-rooms-that-clean-themselves (accessed February 28, 2019).
104 DIGITAL SYSTEMS AND THE DESIGN OF WORK

Case Study 4-1 Automation at Southern Glazer’s Wine and Spirits LLC
Southern Glazer’s Wine and Spirits LLC is the largest alcoholic-beverage distributor in the United
States. Its 1.3 million-square-foot facility is the biggest liquor distribution warehouse in the world.
Would you believe that it is located in Lakeland in north central Florida—a metropolitan area that
has been designated as the third most vulnerable to automation in the country? Southern Glazer was
enticed to set up in Lakeland because of incentives offered by the state: cheap land in the area, three
interstates relatively nearby, and moderately low wages. Prior to the Lakeland facility, it had five
warehouses in Florida which it consolidated into the current mega-facility.
Much of the work in the facility is highly automated. Technologies include beverage distribu-
tion software to support 4-part order wave and automated order routing, pallet and case conveyor
systems, voice-directed picking, five-level pick robotic modules, and a Human Machine Interface
master control station. The highly automated system makes it possible to process 12,000 cases an
hour, which represents a 22% increase over the number of cases processed before the integrated
automation system was introduced.
Southern Glazer’s workforce includes 368 warehouse workers and 392 delivery drivers. Many
jobs require only a high school education. As is the case in automated warehouses around the globe,
humans do the knowledge work or physical tasks that robots can’t do. Those physical tasks typically
require a combination of speed, delicacy, and visual acuity such as when operating machinery in
tight spaces.
Even though Southern Glazer laid off 20% of their total workforce when transitioning to the large
Lakeland warehouse, it eventually rehired most of these workers as automation fueled the compa-
ny’s growth. However, the jobs changed because of automation, according to Ron Flanary, the Sen-
ior Vice President of Southern Glazer’s National Operations. Employees now have to use their brains
to manage the flow of goods through the system and to adapt the system to fluctuations in consumer
demand. For example, many customers who have limited storage space expect daily deliveries.
One warehouse job that many low-skilled workers still are performing is at the final “pick” sta-
tion where single bottles are transferred from bins to shipping containers. This job is accomplished
by humans but assisted by machines. Ironically, the only thing that keeps the humans from being
replaced by machines is their manual dexterity—and not their minds. However, Mr. Flanary opined
that “there will be a time when we have a ‘lights out’ warehouse, and cases will come in off trucks
and nobody sees them again until they’re ready to be shipped to the customer. The technology is
there. It’s just not quite cost-effective yet.”

Sources: Christopher Mims, “Where Robots Will Soon Rule,” Wall Street Journal, February 9–10, 2019, B4; Bob
Trebilcock, “Southern Glazer’s Wine & Spirits: Designed to Last,” Modern Materials Management, July 14, 2017,
https://www.mmh.com/article/southern_glazers_wine_spirits_designed_to_last (accessed February 28, 2019); and
Southern Glazer’s Wine & Spirits Lakeland, loda https://www.bastiansolutions.com/about/media-library/case-
studies/food-beverage/southern-glazers-wine-spirits-lakeland- orida/ (accessed February 28, 2019).

Discussion Questions
1. What do you think will happen to the low-skilled warehouse workers when the technology
becomes more cost effective? What responsibility, if any, do you think that Southern Glazer man-
agers have toward its workers who are displaced by automation and robots? Please explain.
2. What are the advantages and disadvantages of using highly automated systems like those used in
Southern Glazer’s warehouses?
3. How do you think the workers would react to having robots as “coworkers”? If you think they
might resist the robots, describe how you think they would do so.
4. What do you think the humans actually do in the warehouses that the robots cannot do? Besides
the example in this case of the “final pick,” what are the 368 warehouse workers doing? Why
don’t robots do that work in a cost-effective manner today?
 Discussion Questions 105

Case Study 4-2 Trash and Waste Pickup Services, Inc.

Martin Andersen is responsible for 143 of Trash and Waste Pickup Services, Inc.’s (TWPS’s) gar-
bage trucks. TWPS is a commercial and household trash hauler. When a caller recently complained
to Andersen that a brown and green Trash and Waste Pickup Services truck was speeding down Farm
Route 2244, Andersen turned to the company’s information system. He learned that the driver of a
company front-loader had been on that very road at 7:22 A.M., doing 51 miles per hour (mph) in a
35 mph zone. The driver of that truck was in trouble!
The TWPS information system uses a global positioning system (GPS) not only to smooth its
operations but also to keep closer track of its employees, who may not always be doing what they are
supposed to be doing during work hours. Andersen pointed out: “If you’re not out there babysitting
them, you don’t know how long it takes to do the route. The guy could be driving around the world;
he could be at his girlfriend’s house.”
Before TWPS installed the GPS, the drivers of his 37 front-loaders clocked in approximately 250
hours a week of overtime at one and a half times pay. Once TWPS started monitoring the time they
spent in the yard before and after completing their routes and the time and location of stops that they
made, the number of overtime hours plummeted to 70 per week. This translated to substantial sav-
ings for a company whose drivers earn about $20 an hour.
TWPS also installed GPS receivers in salesmen’s cars. Andersen was not surprised to learn that
some of the company’s salespeople frequented The Zone, a local bar, around 4 P.M. when they were
supposed to be calling on customers. Andersen decided to set digital boundaries around the bar.
Understandably, the drivers and salespeople aren’t entirely happy with the new GPS-based sys-
tem. Ron Simon, a TWPS driver, admits: “It’s kind of like Big Brother is watching a little bit. But
it’s where we’re heading in this society. . . . I get testy in the deli when I’m waiting in line for coffee,
because it’s like, hey, they’re (managers) watching. I’ve got to go.”
Andersen counters that employers have a right to know what their employees are up to: “If you
come to work here, and I pay you and you’re driving one of my vehicles, I should have the right to
know what you’re doing.”

Source: This is a ctitious case. Any resemblance to an actual company is purely coincidental.

Discussion Questions
1. What are the positive and negative aspects of Andersen’s use of the GPS-based system to monitor
his drivers and salespeople?
2. What advice do you have for Andersen about the use of the system for supervising, evaluating,
and compensating his drivers and salespeople?
3. As more and more companies turn to IS to help them monitor their employees, what do you
anticipate the impact will be on employee privacy? Can anything be done to ensure employee
privacy?
 5
Information Systems and Digital
Transformation

Transformation requires thinking about things in a revolutionary way—recognizing and shedding

outdated rules and fundamental assumptions that underlie the business. Business processes, the
cross-functional sets of activities that turn inputs into outputs, are at the heart of how businesses
operate and how transformation takes place. Digital transformation uses the principles of finding new
ways to differentiate a business by offering customers a new and valuable way to meet their needs,
often over digital media. This chapter discusses business processes, digital business transformation
and the systems that support them. The chapter begins with a discussion of a functional (silo)
versus a process perspective of a firm, including agile and dynamic business processes. The
chapter then focuses on the way managers change business processes, including incremental
and radical approaches. Digital business transformation is then introduced. Information systems
(IS ) including workflow and business process management systems and enterprise systems that
support and automate business processes follow. The chapter concludes by examining when IS
drive business transformations and the complexities that arise when companies integrate systems.

Business strategy at Sloan Valve Company,1 a family-owned global manufacturer of plumbing products,
had executives launching a range of new products every year. The new product development (NPD) pro-
cess was both core and strategic for Sloan, but it was also complex and slow; over 16 functional units
were involved, and it often took 18–24 months to bring a new product to market. Sloan Valve’s process of
initiating and screening new product ideas was immature and not producing the business results needed
for the company. More than 50% of the ideas that began the process didn’t make it through, resulting in
wasted resources. Further, no one was accountable for the process, making it difficult to get a handle on
process management and improvement. Information flow was blocked in part because of the structure of
the organization.
Management initially invested in an enterprise system to automate the company’s internal processes,
believing that IS would provide a common language, database, and platform. Despite successful imple-
mentation, the communication and coordination problems continued. Further, the new system did not
provide an NPD process. Upon deeper analysis by a new CIO brought in to “fix things,” management real-
ized that the enterprise system was working fine, but the underlying process was broken. Top management
decided to redesign the NPD process.
The NPD process redesign team was led by an IT manager with considerable process experience and
involved members from manufacturing, engineering, IT, finance, marketing, operations, and quality assur-
ance. The director of design engineering was made process owner to provide oversight for all changes.
The team spent nine months assessing the current way of working and proposed a new end-to-end NPD
process. The reengineered NPD process included six subprocesses: ideation, business case develop-
ment, project portfolio management, product development, product and process validation, and launch.

1
Adapted from S. Balaji, C. Ranganathan, and T. Coleman, “IT-Led Process Reengineering: How Sloan Valve Redesigned Its New Product
Development Process,” MIS Quarterly Executive 10, no. 2 (June 2011), 81–92.

106
 Silo Perspective versus Business Process Perspective 107

The underlying information system was the enterprise system upgraded to include newer modules, which
supported product life cycle management.
The quality, timing, and output of NPD greatly improved. The new NPD process reduced time-to-
market to less than 12 months. New product ideas that were unlikely to work were filtered out early, elimi-
nating problems of wasting resources. Synthesis of product and process information improved. Customer
feedback was easier to access. And accountability increased, smoothing out responsibilities and workflow.
Not all IS enterprise system implementations are as successful as that at Sloan Valve. There are hun-
dreds of stories of companies that ran into significant problems when automating and transforming their
business processes, especially when an information system is at the heart of the change. Overstock.com’s
order tracking system failed for a full week when it rolled out a new enterprise system. By rushing to
implement the new system, a glitch put the enterprise system out of sync with the accounting system,
causing the company to have to restate more than five years of earnings, which showed lower revenue and
higher losses. Woolworth’s Australia (“Woolies”) experienced major problems during its six-year long
transition from a 30-year-old ERP built in-house to SAP. The weekly profit-and-loss reports designed for
individual store managers couldn’t be generated for nearly 18 months by the new SAP ERP. The problem
was attributed to the loss of so many senior employees during the long transition period that all institu-
tional knowledge about the system was lost. Consequently, no one knew the processes well enough to
correctly implement SAP.2 Avis Europe attempted to implement an enterprise system, but project delays
and cost overruns caused the company to cancel the project and write off £28 million on its books.3 With
so much at risk, general managers must be informed and involved in these types of complex IS that change
business processes.
IS can enable or impede business change. The right design coupled with the right technology can result
in changes such as those experienced by Sloan Valve. The wrong business process design or the wrong
technology, however, can force a company into operational, and sometimes financial, crisis as the Over-
stock.com, Woolies, and Avis Europe examples show.
To a manager in today’s business environment, an understanding of how IS enable business change
is essential. The terms management and change management are used almost synonymously in today’s
business vocabulary: To manage effectively means to manage change effectively. As IS become ever more
prevalent and more powerful, the speed and magnitude of the changes that organizations must address
to remain competitive continue to increase. To be a successful manager, one must understand how IS
enable change in a business; one must gain a process perspective of the business and must understand how
to transform business processes effectively. This chapter provides managers a view of business process
change. It provides tools for analyzing how a company currently does business and for thinking about how
to effectively manage the inevitable changes that result from competition and the availability of IS. This
chapter also describes an IT-based solution commonly known as enterprise IS and important considera-
tions related to them.
A brief word to the reader is needed. The term process is used extensively in this chapter. In some
instances, it is used to refer to the steps taken to change aspects of the business. At other times, it is used to
refer to the part of the business to be changed: the business process. The reader should be sensitive to the
potentially confusing use of the term process.

Silo Perspective versus Business Process Perspective

When effectively linked with improvements to business processes, advances in IS enable changes that
make it possible to do business in a new way, one that is better and more competitive than before. On
the other hand, IS can also inhibit change, which occurs when managers fail to adapt business processes
because they rely on inflexible systems to support those processes. Finally, IS can also drive change for
better or for worse. Examples abound of industries that were fundamentally changed by advances in IS

2
Josh Fruhlinger and Thomas Wailgum, “15 Famous ERP Disasters, Dustups and Disappointments,” CIO.com, July 10, 2017, https://www.
cio.com/article/2429865/enterprise-resource-planning-10-famous-erp-disasters-dustups-and-disappointments.html (accessed March 14, 2019)
and “Anatomy of an IT Disaster or How Woolies Spent $200 Million on SAP,” Financial Review, June 9, 2016, https://www.afr.com/brand/
chanticleer/anatomy-of-an-it-disaster-or-how-woolies-spent-200-million-on-sap-20160609-gpfowf (accessed March 22, 2019).
3
Adapted from http://www.baselinemag.com/c/a/ERP/Five-ERP-Disasters-Explained-878312/ (accessed February 24, 2012).
108 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

and of companies whose success or failure depended on the ability of their managers to adapt. This chap-
ter considers IS as an enabler of business transformation, a partner in transforming business processes to
achieve competitive advantages. We begin by comparing a process view of the firm with a functional view.
Transformation requires discontinuous thinking—recognizing and shedding outdated rules and funda-
mental assumptions that underlie operations. “Unless we change these rules, we are merely rearranging the
deck chairs on the Titanic. We cannot achieve breakthroughs in performance by cutting fat or automating
existing processes. Rather, we must challenge old assumptions and shed the old rules that made the busi-
ness under perform in the first place.”4

Functional (Silo) Perspective

Many think of business by imagining a hierarchical structure (described in Chapter 3) organized around a
set of functions. A traditional organization chart provides an understanding of what the business does to
achieve its goals. A typical hierarchical structure, organized by function, results in disconnected silos that
might look like the one in Figure 5.1.
When an organization has silos, departments are organized on the basis of their core competencies.
Specialized silos allow them to focus on what they do best. For example, the operations department focuses
on operations, the marketing department focuses on marketing, and so on. Each major function within the
organization usually forms a separate department to ensure that work is done by groups of experts in that
function. This functional structure is widespread in today’s organizations and is reinforced by business
education curricula, which generally follow functional structures, that is, students take courses in func-
tions (i.e., marketing, management, accounting) and major in functions and then are predisposed to think
in terms of these same functions.
Even when companies use the perspective of the value chain model (as discussed in Chapter 2), they
still focus on functions that deliver their portion of the process and “throwing it over the wall” to the next
group on the value chain. These silos become self-contained functional units, which can be useful for
several reasons. First, they allow an organization to optimize expertise and training. For example, all the
marketing people can belong to the same department, allowing them to informally network and learn from
each other. Second, the silos allow the organization to avoid redundancy in expertise by hiring one person
who can be assigned to projects across functions on an as-needed basis instead of hiring an expert in each
function. Third, with a silo organization, it is easier to benchmark outside organizations, utilize bodies of
knowledge created for each function, and easily understand the role of each silo.
On the other hand, silo organizations can experience significant suboptimization. First, individual
departments often recreate information maintained by other departments. Second, communication gaps
between departments are often wide. Third, handoffs between silos are often a source of problems, such
as finger-pointing and lost information. Finally, silos tend to lose sight of the objective of the overall
organization and operate in a way that maximizes their local goals. The last point is illustrated by a
production department that pushes the concept of a small number of product sizes or options while the

Typical Hierarchical Organization Structure

Executive Offices
CEO
President

Operations Marketing Accounting Finance Administration

FIGURE 5.1 Hierarchical structure.

4
Michael Hammer, “Reengineering Work: Don’t Automate, Obliterate,” Harvard Business Review 68, no. 4 (July–August 1990), 104–12.
 Silo Perspective versus Business Process Perspective 109

marketing department urges management to consider a larger variety or highly customized products.
Such conflicts do arise in many organizations, and it can be difficult to negotiate to find a solution that is
best, overall, for the firm.
A firm’s work changes over time. In a functionally organized silo business, each group is primarily
concerned with its own set of objectives. The executive officers jointly seek to ensure that these functions
work together to create value, but the task of providing the “big picture” to so many functionally oriented
personnel can prove extremely challenging. As time passes and business circumstances change, new work
is created that relies on more than one of the old functional departments. Departments that took different
directions must now work together. They negotiate the terms of any new work processes with their own
functional interests in mind, and the “big picture” optimum gets scrapped in favor of suboptimal com-
promises among the silos. These compromises then become repeated processes; they become standard
operating procedures.
Losing the big picture means losing business effectiveness. After all, a business’s main objective is to
create as much value as possible for its shareholders and other stakeholders by satisfying its customers to
stimulate repeat sales and positive word of mouth. When functional groups duplicate work, fail to com-
municate with one another, or lose the big picture and establish suboptimal processes, the customers and
stakeholders are not being well served.

Business Process Perspective

A manager can avoid such suboptimization—or begin to “fix” it—by managing from a business pro-
cess perspective. A business process perspective, or more simply a process perspective, keeps the big
picture in view and allows the manager to concentrate on the work that must be done to ensure the opti-
mal creation of value. A process perspective helps the manager avoid or reduce duplicate work, facilitate
cross-functional communication, optimize business processes, and ultimately, best serve the customers
and stakeholders.
In business, a process is defined as an interrelated, sequential set of activities and tasks that turns inputs
into outputs and includes the following:
• A beginning and an end
• Inputs and outputs
• A set of tasks (subprocesses or activities) that transform the inputs into outputs
• A set of metrics for measuring effectiveness
Metrics are important because they focus managers on the critical dimensions of the process. Metrics
for a business process are things like throughput, which is how many outputs can be produced per unit
time, or cycle time, which is how long it takes for an entire process to execute. Examples of process meas-
ures are the number of handoffs in the process or actual work versus total cycle time. Other metrics are
based on the outputs themselves, such as customer satisfaction, revenue per output, profit per output, and
quality of the output.
Examples of business processes include customer order fulfillment, manufacturing planning and execu-
tion, payroll, financial reporting, and procurement. A procurement process might look like the sample in
Figure 5.2. The process has a beginning and an end, inputs (requirements for goods or services) and outputs
(receipt of goods, vendor payment), and subprocesses (filling out a purchase order, verifying the invoice).
Metrics of the success of the process might include turnaround time and the number of paperwork errors.

Receive Create and

Requirement Send Receive Verify Pay
for Goods/ Purchase Goods Invoice Vendor
Services Order

FIGURE 5.2 Sample procurement business process.

110 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

Functions

O A
M
P C
A S Order Fulfillment Process
E C
Sample R S E
R O
Business K A R
A U
Processes E L V
T N
T E I Customer Support
I T
I S C
O I
N E
N N
G
S G

FIGURE 5.3 Cross-functional nature of business processes.

The procurement process in Figure 5.2 cuts across the functional lines of a traditionally structured
business. For example, the requirements for goods might originate in the operations department based on
guidelines from the finance department. Paperwork would likely flow through the administration depart-
ment, and the accounting department would be responsible for paying the vendor.
Focusing on business processes ensures focusing on the business’s goals (the “big picture”) because
each process has an “endpoint” that is usually a deliverable to a customer, supplier, or other stakeholder.
A business process perspective recognizes that processes are often cross-functional. In the diagram in
Figure 5.3, the vertical bars represent functional departments within a business. The horizontal bars rep-
resent processes that flow across those functional departments. A business process perspective requires an
understanding that processes exist to serve the larger goals of the business and that functional departments
must work together to optimize processes in regard to these goals.
For example, an order-fulfillment process might include payment, order delivery, product implementa-
tion, and after-sales service tasks. This process would involve multiple functions, including operations,
accounting, service, and sales, making it a cross-functional business process. The “sales order” would be
the input for this process. A satisfied customer might be the output, and a number of metrics, such as a
survey of the customer’s satisfaction, time to complete the order fulfillment process, number of defects (or
other quality measure), can be used to measure success.
When managers take a business process perspective, they are able to optimize the value that customers
and stakeholders receive by managing the flow as well as the tasks. They begin to manage processes by:
• Identifying the customers of processes (who receives the output of the process?)
• Identifying these customers’ requirements (what are the criteria for successful implementation of the
process?)
• Clarifying the value that each process adds to the overall goals of the organization
• Sharing their perspective with other organizational members until the organization itself becomes more
process focused
The differences between the silo and business process perspectives are summarized in Figure 5.4.
A silo perspective refers to self-contained functional units such as marketing, operations, finance, and so
on. Unlike a silo perspective, a business process perspective recognizes that businesses operate as a set of
processes that flow across functional departments. The business process perspective enables a manger to
analyze the processes of the business in regard to its larger goals in comparison to the functional orienta-
tion of the silo perspective. Finally, it provides a manager with insights into how those processes might
better serve these goals.
An example illustrates the differences. Using a silo perspective, a customer with a warranty issue would
need to explain a problem with a product to a customer service representative in the service department.
 Silo Perspective versus Business Process Perspective 111

Silo Perspective Business Process Perspective

Definition Self-contained functional units such as marketing, Interrelated, sequential set of activities and
operations, finance, and so on tasks that turns inputs into outputs

Focus Function Cross-function

Goal Accomplishment Goals optimized for the function, which may be Goals optimized for the organization, or the
suboptimal for the organization “big picture”

Benefits Core competencies highlighted and developed; Avoidance of work duplication and cross-
functional efficiencies functional communication gaps; organizational
effectiveness

Problems Redundancy of information throughout the Difficulty in finding staff who can be
organization; cross-functional inefficiencies; knowledgeable generalists; need for
communication difficulties sophisticated software

FIGURE 5.4 Comparison of silo perspective and business process perspective.

If the problem is technical, the call would be transferred to a technical support person (in a different
department), and the customer might need to explain the entire problem again. If the technical support
representative determined that a part is needed, the customer would be transferred to the sales department
and would need to explain the issue yet another time. Because the departments are not talking with one
another, the customer might even need to provide proof of purchase several times to avoid having to pay
for a warranty problem.
In contrast, with a business process perspective, either one representative would work with the customer
on all problems or an enterprise system would enable the representative to transfer both the call and notes
with the details to any specialists who are needed along the way. Having one representative handle all
problems is not always possible because it is often difficult to find staff able to handle an entire process
for the same reasons that support the functional hierarchical structure: People are normally trained in a
function, such as marketing or accounting, not in a process that requires many different skill sets. For
example, individuals who excel at marketing may not also possess the accounting skills needed to fix a
billing problem.

Zara’s Cross-Functional Business Processes

Consider Spanish clothing retailer Zara (introduced in Chapter 2). Zara’s parent company, Inditex, has
grown Zara and its sister companies (Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara
Home, and Uterque) to over 7,400 stores in 96 markets working with more than 1,800 suppliers and 7,200
factories around the world. Zara often is able to design, produce, and deliver a garment to the stores within
3 weeks and stores get new styles twice a week. For this to happen, its managers must regularly create and
rapidly replenish small batches of goods all over the world. Zara’s organization, operational procedures,
performance measures, and even its office layout are all designed to make information transfer easy.
Zara’s designers are co-located with the production team, including marketing, procurement, and pro-
duction planners. Prototypes are created nearby, facilitating easy discussion about the latest design. Large
circular tables in the middle of the production process encourage impromptu meetings where ideas are
readily exchanged among the designers, market specialists, and production planners. The speed and qual-
ity of the design process is greatly enhanced by the co-location of the entire team because the designers can
quickly check their ideas with others on their cross-functional teams. For example, the market specialists
can quickly respond to designs in terms of the style, color, and fabric, whereas the procurement and pro-
duction planners can update these specialists about manufacturing costs and available capacity. Without
this focus on cross-functional process efficiency, the company would not be able to sustain the high veloc-
ity of designs that are delivered to the stores.
Logistics at Zara are also designed for speed and efficiency. The 10 logistics centers serve the needs of
the stores, making deliveries possible anywhere in the world in no more than 2 days. The logistics centers
112 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

are all in Spain, in close proximity to the head offices and the production facilities, cutting travel time and
distance to increase responsiveness. IS manage dispatch time, making the movement, storage and collec-
tion of shipped boxes precise and efficient. Shipping boxes, hangers, and other components are standard-
ized, reused multiple times, and designed for high packing density per shipment, cutting down on both
waste, and number of packages that must be shipped.
Zara’s information technology provides a platform but does not preclude informal face-to-face conver-
sations. Retail store managers are linked to marketing specialists through customized mobile devices but
sometimes use the telephone to share order data, sales trends, and customer reactions to a new style. Zara’s
cross-functional teams enable information sharing among everyone who “needs to know” and therefore
creates the opportunity to change directions quickly to respond to new market trends.

Building Agile and Dynamic Business Processes

To stay competitive and consistently meet changing customer demands, organizations build dynamic busi-
ness processes or agile business processes, processes that repeat through a constant renewal cycle of
design, deliver, evaluate, redesign, and so on. Agile business processes are designed to simplify redesign
and reconfiguration. They are designed to be flexible and easily adaptable to changes in the business envi-
ronment and can be incrementally changed with little effort. Dynamic business processes, on the other
hand, reconfigure themselves as they “learn” and the business utilizes them.
To be agile or dynamic, a process often has a high degree of IT use. The more the process that can be
done with software, the easier it is to change, and the more likely it can be designed to be agile or dynamic.
Examples of agile processes are often found in manufacturing operations, where production lines are
reconfigured regularly to accommodate new products and technologies. For example, automobile produc-
tion lines produce large numbers of vehicles, but very few are identical to the one made before or after it
on the production line. Also, vehicles are often built with space and wiring for options (such as a remote
starter) that can be added by a dealer quickly and with minimal labor. The design of the line is such that
many changes in design, features, or options are just incorporated into the assembly of the vehicle at hand.
Another common example is in software development. Agile software development methodologies
underlie an incremental and iterative development process that is often used to rapidly and collaboratively
create working and relevant software (see Chapter 11).
More recently, with the use of the Internet and social technologies, building agility into business pro-
cesses is increasingly common. Processes run entirely in the digital world. Some common examples are
order management, service/product provisioning, human resource support, and bill payment. The perva-
siveness of the digital world has necessitated rethinking many business processes; customers, employees,
and other stakeholders expect to be able to access processes on the web and perform self-service.
In fact, many processes have been designed as an app, as described in the Introduction. Consider smart-
phones or tablets. Each app loaded on these devices is, in reality, an automated business process. And
because it’s an app, it’s relatively easy for the developer to upgrade, fix, and enhance. Apps are good
examples of software that support agile processes.
An example of a dynamic process is a network with a changing flow of data. The network could have
sensors built in to monitor the flow, and when flow is greater than the current network configuration can
handle, the network automatically redistributes or requisitions more capacity to handle the additional data
and reconfigures itself to balance the flow over the new channels. As more devices are connected to the
Internet, more processes will become dynamic, a direct benefit of the Internet of Things (IoT) trend. For
example, thermostats connected to the Internet make it possible to dynamically adjust the temperature in
an office building without an individual visiting the space. Another example, with a more physical con-
figuration, would be a call center. Call center systems are designed to monitor the flow of calls coming into
a center and the time it takes for agents to respond to them. These systems can automatically redistribute
calls to or from other centers as volume increases or decreases. The system might be sufficiently sophisti-
cated so that it can add additional agents to the schedule or alert a supervisor of an increase and route calls
to standby agents. Enabling the system to redistribute incoming calls to respond to changes in the center
is an important capability.
Dynamic IT applications, a component of software defined architecture, described more fully in
Chapter 6, are required for dynamic business processes. When the underlying IT is not designed with this
 Building Agile and Dynamic Business Processes 113

goal in mind, the business process itself cannot adapt as necessary to changing requirements of the busi-
ness environment. The benefits of agile and dynamic business processes are operational efficiency gained
by the ease of incrementally improving the process as necessary and the ability to create game-changing
innovative processes more quickly.
Sloan Valve’s NPD process is another example of a more flexible approach. Compared to the old way of
doing things where product designs had to pass through many functional units before they were approved
for production and were tied to legacy IS, the redesigned NPD process was dynamic and fast. It enabled
detection of and reaction to customer feedback, process problems, and team misalignments.

Changing Business Processes

Sloan Valve decided to do a complete redesign of its NPD process. After trying to incrementally change
it with a new IS, and minor changes to the process, managers realized that a complete transformation was
necessary.
Transforming a business today means redesigning business processes. Two techniques used to trans-
form a static business process are: (1) radical process redesign, which is sometimes called business pro-
cess reengineering (BPR) or simply reengineering and (2) incremental, continuous process improvement,
which includes total quality management (TQM) and Six Sigma. Radical and incremental improvement
concepts are important; they continue to be different tools a manager can use to effect change in the way
his or her organization does business. The basis of both approaches is viewing the business as a set of busi-
ness processes rather than using a silo perspective.

Incremental Change
At one end of the continuum, managers use incremental change approaches to improve business processes
through small, incremental changes. This improvement process generally involves the following activities:
• Choosing a business process to improve
• Choosing a metric by which to measure the business process
• Enabling personnel to find ways to improve the business process based on the metric
Personnel often react favorably to incremental change because it gives them control and ownership of
improvements and, therefore, renders change less threatening. The improvements grow from their grass-
roots efforts. Total quality management (TQM) is one such approach that incorporates methods of con-
tinuous process improvement. At the core of the TQM method is W. Edwards Deming’s “14 Points,” or key
principles to transform business processes. The principles outline a set of activities for increasing quality
and improving productivity.5 TQM has lost some of its luster in the United States, but it continues to be
very popular in Europe and Asia.
Six Sigma is an incremental and data-driven quality management approach for eliminating defects
from a process. The term six sigma comes from the idea that if the quality of all output from a process
were to be mapped on a bell-shaped curve, the tail of the curve, six sigma (standard deviations) from the
mean, would represent less than 3.4 defects per million. Such a low rate of defects would be close to per-
fect. The Six Sigma methodology is carried out by experts known as Green Belts and more experienced
experts known as Black Belts, who have taken special Six Sigma training and worked on numerous Six
Sigma projects. Motorola was one of the first companies in the United States to use Six Sigma, but GE
made the method a part of its business culture driving significant and continuous improvement throughout
the corporation. The GE website states: “Six Sigma is a highly disciplined process that helps us focus on
developing and delivering near-perfect products and services.”6

5
For more information about TQM and Deming’s 14 Point approach to quality management, see the ASQ (formerly known as the American
Society for Quality), a global community of experts on quality and the administrators of the Malcolm Baldrige National Quality Award
program, http://asq.org/learn-about-quality/total-quality-management/overview/overview.html (accessed August 26, 2015).
6
http://www.ge.com/en/company/companyinfo/quality/whatis.htm (accessed August 27, 2015).
114 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

An example of incremental change is when the state of Kansas implemented the Kansas Information
Technology Architecture (KITA) slowly over numerous years. A small staff (two to three people) made
twelve incremental updates to make sure that the KITA stayed relevant and met the needs of the state.7

Radical Change
Incremental change approaches work well for tweaking existing processes. However, they tend to be less
effective for addressing cross-functional processes. Major changes usually associated with cross-functional
processes require a different type of management tool. At the other end of the change continuum, radi-
cal change enables the organization to attain aggressive improvement goals (again, as defined by a set of
metrics). The goal of radical change is to make a rapid, breakthrough impact on key metrics. Some busi-
nesses even have made radical process reconfiguration a core competency so that they can better serve
customers whose demands are constantly changing.
Sloan Valve is an example of a company that set aggressive improvement goals and reached them with
a radical change approach. The company set out to dramatically improve new products’ time to market and
was able to reduce it from 18–24 months to 12 months. Another example of radical change may be seen in
the way that the State of California undertook a much-needed major reorganization of its IT environment.
It decided to implement an enterprise architecture to standardize the process for designing and implement-
ing e-Government solutions, as well as to address its IT governance crisis. It took ten people from multiple
agencies to deliver version 1.0 of the complex enterprise architecture framework in just little over a year.8
The difference in the incremental and radical approaches over time is illustrated by the graph in
Figure 5.5. The vertical axis measures, in one sense, how well a business process meets its goals. Improve-
ments are made either incrementally or radically. The horizontal axis measures time.
Not surprisingly, radical change typically faces greater internal resistance than does incremental change.
Therefore, radical change processes should be carefully planned and used only when major change is
needed in a short time. Some examples of situations requiring radical change are when the company is in
trouble, when it faces a major change in its operating environment, or when it must change significantly to
outpace its competition. Key aspects of radical change approaches include the following:
• Need for major change in a short amount of time
• Thinking from a cross-functional process perspective
• Challenge to old assumptions
• Networked (cross-functional) organization
• Empowerment of individuals in the process
• Measurement of success via metrics tied directly to business goals and the effectiveness of new processes
(e.g., production cost, cycle time, scrap and rework rates, customer satisfaction, revenues, and quality)
Percent Improvement

80
al

60
ic
ad
R

40 Incremental

20

Time

FIGURE 5.5 Comparison of radical and incremental improvement.

7
Q. Bui, “Increasing the Relevance of Enterprise Architecture through ‘Crisitunities’ in US State Governments,” MIS Quarterly Executive
14, no. 4 (2015), 169–79.
8
Ibid.
 Workflow and Mapping Processes 115

Digital Business Transformation

Digital technologies have enabled organizations to make radical change to many business processes, lead-
ing managers to create entirely new digital business models. Research by Peter Weill and Stephanie
Woerner9 suggests that these new business models have changed from value chains to digital ecosystems
and enabled managers to have a razor sharp understanding of customer needs. Their work suggests that
digital business models fall into one of four types based on knowledge needed/known of the customer and
business design and control of key decisions. Figure 5.6 summarizes these model types.
Omnichannel companies have strong customer relationships and often create multiple, complex cus-
tomer experiences to deepen the relationships using an integrated value chain. Ecosystem drivers also
have strong customer relationships but, on the other hand, they have used digital technologies to collect
and use customer data from all interactions with customers, and add complementary products even if they
are offered by competitors. In so doing, they become the key company to do business with in their space.
Suppliers sell through others by being the low-cost producer in the value chain of the company who has
the primary connection with the customer. Modular producers also offer products and services primarily
to others who manage the ultimate customers, but with their strong focus on digital innovations, they are
more adaptable and able to serve multiple ecosystems, plugging in easily to different value chain models.
Digital business transformation means understanding where a company is today and where it wants to
be as digital technologies force examination of more traditional business models. Radical business pro-
cesses require two types of understanding: (1) the threats and competitive advantages digital technologies
bring to the business and (2) how digital technologies can strengthen customer relationships. The trans-
formation sometimes means survival in a way that might be very different than the original company. For
example, Schneider Electric, a global energy management and automation company, began to notice the
digital threat to its business model, stimulating its need to reduce complexity while building closer rela-
tionships with its customers. Smaller, innovative, and more local companies were beginning to threaten
Schneider Electric’s customer relationships, offering better prices, newer digital products, and equally
visibility (because of the ability to find them on the Internet). Schneider Electric leadership transformed
its business model through radical change of many processes with infusion of digital technologies that
enabled new ways of work and new insights of their customers.

Workflow and Mapping Processes

Workflow in its most basic meaning is the series of connected tasks and activities performed by people
and computers that together form a business process. Consideration of workflow is a way to assess a
cross-functional process. But the term workflow has come also to mean software products that document
and automate processes. Workflow software facilitates the design of business processes and creates a
digital workflow diagram. Workflow software lets the manager diagram answers to questions such as how
a process will work, who will do what, what the information system will do, and what decisions will be
made and by whom. When combined with business process management (BPM) modules, processes can
be managed, monitored, and modified.
The tool used to understand a business process is a workflow diagram, which shows a picture, or
map, of the sequence and detail of each process step. More than 200 products are available for helping
managers diagram the workflow. The objective of process mapping is to understand and communicate

Business Design and Control of Key Decisions

Value Chain Ecosystem
Knowledge of Customers Complete Omnichannel Ecosystem Driver
Ex: banks, retail, energy companies Ex: Amazon, Fidelity, WeChat

Partial Supplier Modular Producer

Ex: insurance via agent, TV via retailer Ex: PayPal, Kabbage

FIGURE 5.6 Weill and Woerner’s Digital Business Model Framework.

Source: Adapted from Peter Weill and Stephanie Woerner, “What’s Your Digital Business Model?” Harvard Business Review Press (2018) page 8.

9
Peter Weill and Stephanie Woerner, “What’s Your Digital Business Model?” Harvard Business Review Press (2018).
116 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

the dimensions of the current process. Typically, process engineers begin the process mapping procedure by
defining the scope, mission, and boundaries of the business process. Next, engineers develop a high-level
overview flowchart of the process and a detailed flow diagram of everything that happens in the process.
The diagram uses active verbs to describe activities and identifies all process actors, inputs, and outputs. The
engineers verify the detailed diagram for accuracy with the actors in the process and adjust it accordingly.

Business Process Management (BPM)

Thinking about the business as a set of processes has become more common, but managing the business
as a set of processes is another story. Some claim that to have truly dynamic or agile business processes
requires a well-defined and optimized set of IT processes, tools, and skills called BPM suites. These sys-
tems include process modeling, simulation, code generation, process execution, monitoring, and integra-
tion capabilities for both company-based and web-based systems to document and redesign workflow and
business processes. The tools allow an organization to actively manage and improve its processes from
beginning to end. BPM software automates, executes, and monitors business processes making it possible
for managers and analysts to build and modify processes quickly and without having to know program-
ming languages that historically were necessary to create the code needed to run a process.
Enterprise Rent-A-Car, one of the largest car rental companies in the world with 7,600 locations in
85 countries, used BPM to model, manage, and streamline its IT-based processes. It used BPM to build
Request Online, the system through which employees requested laptops, software and applications, sys-
tem access, reports, and other services available from the IS department. The prior system was mostly
manual, not scalable as volume increased, and not automatable. Not surprisingly, it was difficult to make
improvements to that system. Using a BPM system, the IT staff developed a model that copied the way
service requests were already handled so the experience would be familiar and added features slowly to
enhance the experience. The result was a BPM-based system that provided better management capabilities
and created a common platform for rapid change and capacity for future growth. That proved critical when
Enterprise acquired National Car Rental and Alamo Rent A Car, creating much more demand for Request
Online. Enterprise was able to shift development to less costly IT staff who could make process modifica-
tions directly through the BPM. Finally, the usability of the system was increased as the BPM facilitated
the creation of customized interfaces based on characteristics of the specific users.10
Business process management (BPM) systems provide a way to build, execute, and monitor auto-
mated processes that are intelligent, dynamic, and may go across organizational boundaries. BPM systems
offer process designers a number of design and management capabilities (see Figure 5.7).

BPM Capability Description

Business Process Automation Capabilities to automate the interaction of the people, machines and other components of the process to
create repeatable and predictable task execution

Human Task Management and Collaboration Capabilities for process stakeholders to initiate tasks and processes as needed and to collaborate with each other

Monitoring and Business Alignment Capabilities to plan, model, coordinate, govern, and monitor the life cycle of business processes in real time

Business Rules and Decision Management Capabilities to manage rule engines, recommendation engines, and decision management engines to insure
operational decisions follow company policies

Analytics Capabilities to use process and business data for insights, predictions, and prescriptions to aid in decisions
and trigger automatic responses in applications

Interoperability Capabilities to connect to external applications that might provide additional features and services (for example,
Robotic Processing Automation (RPA) tools)

Process Discovery and Optimization Capabilities that speed up the time necessary to discover and optimize behaviors needed to improve business
processes (for example, analyzing historic information or simulating proposed behaviors of process users)

Context and Behavioral History Capabilities to manage data about the context and behavior of past versions of the process

FIGURE 5.7 Sample capabilities of BPM.

Source: Adapted from the Gartner Report on BPM: “Magic Quadrant for Intelligent Business Process Management Suites, ID G00345694, published January 30, 2019 by Gartner, Inc.

10
Adapted from http://www.appian.com/about/news-item/enterprise-rent-car-goes-live-appian-enterprise/ (accessed August 27, 2015).
 Types of Enterprise Systems 117

A Closer Look: Integration versus Standardization

Processes are the ways organizations deliver goods and services to customers. Designing, building,
and executing processes are roles of management. Dr. Jeanne Ross, Principal Research Scientist at
MIT’s Center for Information Research, suggested that the levels of integration and standardization
of business processes determine the role of IS. Ross pointed out that “Companies make two impor-
tant choices in the design of their operations: (1) how standardized their business processes should
be across operational units (business units, region, function, market segment) and (2) how integrated
their business processes should be across those units.” The resulting model defines important IT and
business capabilities (see Figure 5.8). The level of process integration and standardization defines
the necessary IS capabilities and ultimately the investment the firm will need to make in IS.
Merrill Lynch’s Global Private Client business with high integration and low standardization
provides a wide range of financial services to clients across multiple channels such as financial
advisory services, online services, and help center support services. The key to the company’s
success is integration across processes to provide a single view of the customer, which can then
be leveraged when new products and services are announced. At the same time, the company
does not expect standardization across processes; each operating unit can create what it needs
as long as it uses a standardized technology platform that supports the integrated design. That
is, the separate systems need to coordinate the various information resources among themselves.

Business Process Standardization

Low High
Business Process Integration

High The business is focused on process integration, The business has a centralized design with high
usually creating a single face to customers and needs for reliability, predictability, and sharing data
suppliers but does not usually impose process across business units, creating a single view of the
standards on operating units. process.

Low The business has a decentralized design with The business is focused on process standardization
which business units make local decisions on in which tasks are done the same way with the same
processes to meet customer needs. systems across business units, but the business units
have little need to interact.

FIGURE 5.8 Standardization versus integration.

Source: J. W. Ross, “Forget Strategy: Focus IT on Your Operating Model,” Center for Information Systems
Research (CISR) Brief (2005), http://cisr.mit.edu/blog/documents/2005/12/09/2005_12_3c_operatingmodels.
pdf (accessed May 23, 2015).

Types of Enterprise Systems

Information technology is a critical component of almost every business process today because informa-
tion flow is at its core. A class of IT applications called an enterprise system is a set of IS tools that many
organizations use to enable this information flow within and between processes across the organization.
These tools help ensure integration and coordination across functions such as accounting, production,
customer management, and supplier management. Some are designed to support a particular industry such
as health care, retail, and manufacturing.
Computer systems in the 1960s and early 1970s were typically designed around a specific application.
These early systems were often not connected with each other and typically had their own version of data.
One of the authors moved to another home in 1980 and visited the bank to change his address. He had to
fill out a separate form for his checking and savings accounts. It was lucky that the post office forwarded
mail for a year after the move; four months after moving, the bank sent a year-end auto loan summary
document via his old address, requiring another update of the address, and nearly a year later, the bank sent
his safe deposit box renewal form via his old address too, requiring yet another update. It was obvious that
each system contained its own copy of redundant data and existed in its own silo.
118 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

Organizational computing groups faced the challenge of linking and maintaining the patchwork of
loosely overlapping, redundant systems. In the 1980s and 1990s, software companies in a number of
countries, including the United States, Germany, and the Netherlands, began developing integrated
software packages that used a common database and cut across organizational systems. Some of
these packages were developed from administrative systems (e.g., finance and human resources),
and others evolved from materials resource planning (MRP) in manufacturing. These comprehensive
software packages that incorporate all modules needed to run the operations of a business are called
enterprise information systems (EIS) or simply enterprise systems. Enterprise systems include
ERP, supply chain management (SCM), CRM, and product life cycle management (PLM) systems
(see Figure 5.9). Some companies develop proprietary enterprise systems to support mission-critical
processes when they believe these processes give them an advantage and using a vendor-supplied
system would jeopardize that advantage. Other enterprise systems may be developed specifically to
integrate organizational processes. Figure 5.10 describes some examples of the processes supported
by an enterprise system.
Two of the largest vendors of enterprise systems are German-based SAP and California-based Oracle.
Initially, SAP defined the ERP software space, and Oracle had the database system supporting it. But more
recently, SAP has moved to its own database system, and Oracle has acquired many other smaller vendors,
creating their own suite of enterprise software solutions.
Sloan Valve, the case introduced at the beginning of this chapter, used SAP. Initially, Sloan imple-
mented the ERP module, but as the design emerged for the NPD process, the PLM module was key. It ena-
bled the process owner to keep track of targets, look at efficiencies in the process, and understand process
problems. It also helped track and allocate resources for each new product idea and enabled coordination
across all the cross-functional team members.

Implements functions of order Procurement (SRM)

placement, order scheduling,
Maximise cost savings with support
shipping and invoicing.
for the end-to-end procurement and
logistics processes.
Sales
I
Customer services II
(CRM) II
Analyse data and
Focus on external strategies.
Production (PLM)
Capture and maintain customer convert to information.
relationships, facilitate the use of Helps in planning and optimising
customer experiences and evaluate
the knowledge management.
II the manufacturing capacity and
material resources. It is evolved
II Business Intelligence e-Commerce II from the MRP.

Efficiently and sustainably manage

Control warehouse processes and
Aims to streamline and gain the entire asset lifecycle, improve
manage movements in the
greater control of the corporate asset usage and cut costs with
warehouse and respond faster to
powerful analytics.
services. II and others... challenges and changes in
supply and demand.
Enterprise asset
Distribution (SCM)
management
Corporate performance
and governance
Accounting
I Human Resource
Maintain a complete employee
Automate any financial operations
while ensuring regulatory compliance
II
database and to optimally utilise of and gaining real-time insight into overall
all employees. performance.

I Traditional ERP modules I I II ERP II modules

FIGURE 5.9 Enterprise systems and the processes they automate.

Source: Adapted from Shing Hin Yeung, http://commons.wikimedia.org/wiki/File:ERP_Modules.png (accessed August 27, 2015).
 Types of Enterprise Systems 119

Enterprise System Sample Processes

Enterprise resource Financial management (accounting, financial close, invoice to pay process, receivable
planning (ERP) management); human capital management (talent management, payrolls, succession planning);
operations management (procurement, logistics, requisition invoice payment, parts inventory)

Customer relationship Marketing (brand management, campaign management); lead management; loyalty program
management (CRM) management; sales planning and forecasting; territory and account management; customer service
and support (claims, returns, warranties)

Supply chain Supply chain design; order fulfillment; warehouse management; demand planning, forecasting;
management (SCM) sales and operations planning; service parts planning; source-to-pay/procurement process; supplier
life cycle management; supply contract management

Product life cycle Innovation management (strategy and planning, idea capture and management, program/project
management (PLM) management); product development and management; product compliance management

FIGURE 5.10 Enterprise systems and examples of processes they support.

Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP) was designed to help large companies manage the fragmentation of
information stored in hundreds of individual desktop, department, and business unit computers across the
organization. These modules offered the IS department in many large organizations an option for switch-
ing from underperforming, obsolete mainframe systems to client-server environments designed to handle
the changing business demands of their operational counterparts. Many firms moved from their troubled
systems in the late 1990s to avoid the year 2000 (Y2K) problem11 and to standardize processes across their
businesses.
The next generation of enterprise system emerged: ERP II systems. Whereas an ERP makes company
information immediately available to all departments throughout the company, ERP II also makes com-
pany information immediately available to external stakeholders, such as customers and partners. ERP II
enables e-business by integrating business processes between an enterprise and its trading partners. More
recently, a move to better manage IS using the cloud has again called into question the design of some
business processes.
ERP III systems include all ERP II functionality plus social and collaboration features (see Figure 5.11).
A good example is Chatter from Salesforce.com,12 which includes an activity stream interface (similar to
Facebook) for employees with easy connections to the firm’s information in its ERP. An activity stream
is a flow of information recording all transactions and interactions of people and processes connected to
the system. SAP’s ERP solution includes SAP ERP Financials, SAP ERP Human Capital Management,
and SAP ERP Operations. Oracle’s ERP solution, EnterpriseOne, offers these same functions. Both ven-
dors have integrated their ERP solutions with their supply chain/logistics solutions, their CRM solutions,
and several other modules that make them a one-stop shop for software that provides the backbone of an
enterprise.

Characteristics of ERP Systems

ERP systems have several characteristics13:
• Integration. ERP systems are designed to seamlessly integrate information flows throughout the company.
ERP systems are configured by installing various modules, such as:
• Manufacturing (materials management, inventory, plant maintenance, production planning, routing,
shipping, purchasing, etc.)

11
The Y2K problem was of great concern at the end of the 1990s because many old systems used two digits instead of four digits to represent
the year, making it impossible to distinguish between years such as 2000 and 1900.
12
See http://www.salesforce.com/chatter/overview/ (accessed August 27, 2015).
M. Lynne Markus and Cornelis Tanis, “The Enterprise System Experience—From Adoption to Success,” Framing the Domains of IT
13

Management: Projecting the Future through the Past, ed. R. Zmud (Cincinnati, OH: Pinaflex Educational Resources, 2000), 176–79.
120 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

ERP Generations Key Features

ERP I Enterprise optimization and integration of manufacturing, distribution and support processes

ERP II Value chain participants connecting all business processes in an organization, including external
stakeholders

ERP III Value networks and virtual value chain processes connecting global stakeholders including customers,
strategic alliance partners and collaborators in an open network to create a borderless enterprise

FIGURE 5.11 Comparison of ERP generations.

Source: Adapted from Luminita Hurbean and Doina Fotache, “ERP III: The Promise of a New Generation,” Proceedings of the IE 2014 International
Conference, www.conferenceie.ase.ro.

• Accounting (general ledger, accounts payable, accounts receivable, cash management, forecasting,
cost accounting, profitability analysis, etc.)
• Human resources (employee data, position management, skills inventory, time accounting, payroll,
travel expenses, etc.)
• Sales (order entry, order management, delivery support, sales planning, pricing, etc.)

• Packages. ERP systems are usually commercial packages purchased from software vendors. Unlike
many packages, ERP systems usually require long-term relationships with software vendors because
the complex systems must typically be modified on a continuing basis to meet the organization’s needs.
• Best practices. ERP systems reflect industry best (or at least “very good”) practices for generic business
processes. To implement them, businesses often have to change their processes in some way to accom-
modate the software.
• Some assembly required. The ERP system is software that needs to be integrated with the organization’s
hardware, operating systems, databases, and network. Further, ERP systems often need to be integrated
with proprietary legacy systems. It often requires that middleware (software used to connect processes
running in one or more computers across a network) or “bolt-on” systems be used to make all the com-
ponents operational. Vendor-supplied ERP systems have a number of configurable components, too,
which need to be set up to best fit with the organization. Rarely does an organization use an ERP system
directly “out of the box” without configuration.
• Evolving. ERP systems were designed first for mainframe systems, then for client-server architectures,
and now for web-enabled or cloud-based delivery.
Integrating ERP packages with other software in a firm is often a major challenge. For example, inte-
grating internal ERP applications with supply chain management software seems to create issues. Mak-
ing sure the linkages between the systems happen seamlessly is a challenge. One important problem in
meeting this challenge is to allow companies to be more flexible in sourcing from multiple (or alternative)
suppliers while also increasing the transparency in tightly coupled supply chains. A second problem is to
integrate ERP’s transaction-driven focus into a firm’s workflow.14

Managing Customer Relationships

A type of software package that is increasingly considered an enterprise system is a customer relationship
management system. Customer relationship management (CRM) is a set of software programs that sup-
ports management activities performed to obtain, enhance relationships with, and retain customers. They
include sales, support, and service processes. Today, CRM has come to mean the enterprise systems that
support these processes, and the term is used interchangeably with the set of activities.

14
Amit Basu and Akhil Kumar, “Research Commentary: Workflow Management Issues in e-Business,” Information Systems Research 13,
no. 1 (March 2002), 1–14.
 Types of Enterprise Systems 121

CRM processes create ways to learn more about customers’ needs and behaviors with the objective of
developing stronger relationships. CRM systems consist of technological components as well as many
pieces of information about customers, sales, marketing effectiveness, responsiveness, and market trends.
Optimized CRM processes and systems can lead to better customer service, more efficient call cent-
ers, product cross-selling, simplified sales and marketing efforts, more efficient sales transactions, and
increased customer revenues. The goal of CRM is to provide more effective interaction with customers and
bring together all information the company has on a customer.

A Closer Look: Whose Best Practices?

ERP systems are usually designed around best practices—but whose best practices? SAP and Oracle,
the leading vendors of ERP systems, have a Western bias. More specifically, best practices at the
heart of their systems are based upon business processes that are found in successful companies in
Germany and North America. However, when these systems are transplanted into Asian companies,
problematic “misfits” have been found to occur.
Consider ERP systems designed for hospitals. Since Western health-care models are different
from those used in Singapore, for example, ERP systems designed around best practices in Western
hospitals won’t work for Singapore hospitals. In Western countries, insurance enables patients to
pay a fraction of their medical expenses themselves, and the government or private insurance covers
the rest. Singapore has a completely different model. In Singapore, health-care expenses are covered
primarily by the individual. Government subsidies and other community support are minimal.
How does this affect processes embedded in ERP systems in hospitals? When ERP systems are
designed for Western hospitals, they include modules that help manage the complexity of billing and
collections. When the primary payment is from individuals paying at the time of service, the collec-
tions process is significantly different. Further, “bed class” is important in Singapore where patients
in public hospitals can choose from a variety of plans ranging from one bed to six or more per room
and the ERP systems need to account for this.
Because of differences and “misfits,” businesses in many non-Western companies are turning to
local vendors that have developed systems reflecting local best practices. The local ERP vendors
have adopted a strategy of customization and are more willing to modify their systems to satisfy
local needs than are their large global competitors.
These examples suggest that another factor needs to be considered when designing and imple-
menting and ERP: It should not be implemented if the system is based on a cultural model that
conflicts with the local customs and that cannot easily be accommodated.
Sources: C. Soh, S. K. Sia, and J. Tay-Yap, “Cultural Fits and Misfits: Is ERP a Universal Solution,” Communica-
tions of the ACM 43, no. 4 (2000), 47–51 and E. T. G. Wang, G. Kleing, and J. J. Jiang, “ERP Misfit: Country of
Origin and Organizational Factors,” Journal of Management Information Systems 23, no. 1 (2006), 263–92.

The top-selling CRM systems are from Salesforce.com, Adobe, Oracle, SAP, and Microsoft.15 Oracle
and SAP have CRM systems that fully integrate with their other enterprise systems, offering compa-
nies using these broader ERP systems some advantages over stand-alone systems. CRM systems usually
include modules for pricing, sales force automation, sales order management, support activities, customer
self-service, and service management, marketing support such as resource and brand management, cam-
paign management, real-time offer management, loyalty management, and e-marketing. Often there is
an e-commerce module that facilitates personalized interface and self-service applications for customers.
Managers who seek a CRM system for their organizations should compare the features and integration
with other enterprise systems of these and other solutions provided by niche vendors who specialize in
systems optimized for specific industry applications.

15
Albert Pang, et al. “Top 10 CRM Software Vendors Market Forecast 2017–2022,” https://www.appsruntheworld.com/top-10-crm-software-
vendors-and-market-forecast/ (accessed February 8, 2019).
122 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

Social technologies are increasingly integrated into CRM solutions. Providing software or web appli-
cations that extend the brand, engage customers, allow customers to interact with each other and with
employees, and provide service options generates additional “touches” with customers. CRM systems
record these touches. The information becomes an additional channel of data useful for building customer
relationships.
In Chapter 1, we describe the Ritz-Carlton’s CRM, Class, which captures information about guest
preferences and enables the chain to provide enhanced, customized service during future visits. Websites
collect information from customers who visit, make purchases, or request information. That information is
stored in the company’s CRM and used in many ways to better meet customer needs and enhance the cus-
tomer experience. For example, movie site Netflix stores all the purchases and product reviews a customer
makes in its CRM. Using that information, the site recommends additional films the customer might enjoy
based on analysis of the data in the CRM.

Managing Supply Chains

Another type of enterprise system in common use is a supply chain management (SCM) system, which
manages the integrated supply chain. Business processes are not just internal to a company. With the help
of information technologies, many processes are linked across companies with a companion process at a
customer or supplier, creating an integrated supply chain. Technology, especially web-based technology,
allows the supply chains of a company’s customers and suppliers to be linked through a single network that
optimizes costs and opportunities for all companies in the supply chain. By sharing information across the
network, guesswork about order quantities for raw materials and products can be reduced, and suppliers
can make sure they have enough on hand if demand for their products unexpectedly rises. In addition to
products supplied to a company, supply chains also include services purchased from outside vendors, such
as equipment maintenance, and those activities are often managed through SCMs.
The supply chain of a business is the process that begins with raw materials and ends with a product
or service ready to be delivered (or in some cases actually delivered) to a customer. It typically includes
the procurement of materials or components, the activities to turn these materials into larger subsystems
or final products, and the distribution of these final products to warehouses or customers. But with the
increase in IS use, the supply chain may also include product design, product planning, contract manage-
ment, logistics, and sourcing. Globalization of business and ubiquity of communication networks and
information technology have enabled businesses to use suppliers from almost anywhere in the world. At
the same time, this has created an additional level of complexity for managing the supply chain. Supply
chain integration is the approach of technically linking supply chains of vendors and customers to stream-
line the process and to increase efficiency and accuracy.
Without such linking, a temporary increase in demand from a retailer might become interpreted by its
suppliers as permanent, and the changes can become magnified by each supplier up the chain when each
supplier attempts to add another percent or two just to be “safe.” Those erratic and wild changes are called
the bullwhip effect. Linking synchronizes all suppliers to the same demand increase up and down the chain
and prevents that effect.
Integrated supply chains have several challenges, primarily resulting from different degrees of inte-
gration and coordination among supply chain members.16 At the most basic level, there is the issue of
information integration. Partners must agree on the type of information to share, the format of that infor-
mation, the technological standards they both use to share it, and the security they use to ensure that only
authorized partners access it. Trust must be established so the partners can solve higher-level issues that
may arise. At the next level is the issue of synchronized planning. At this level, the partners must agree on
a joint system of planning, forecasting, and replenishment. The partners, having already agreed on what
information to share, now have to agree on what to do with it. The third level can be described as workflow
coordination—the coordination, integration, and automation of critical business processes between part-
ners. For some supply chains, this might mean simply using a third party to link the procurement process

16
Hau Lee and Seungjin Whang, “E-Business and Supply Chain Integration,” Stanford University Global Supply Chain Management Forum
(November 2001).
 Types of Enterprise Systems 123

to the preferred vendors or to communities of vendors who compete virtually for the business. For others,
it might be a more complex process of integrating order processing and payment systems. Ultimately, sup-
ply chain integration leads to new business models as varied as the visionaries who think them up. These
business models are based on new ideas of coordination and integration made possible by the Internet
and information-based supply chains. In some cases, new services have been designed by the partnership
between supplier and customer, such as new financial services offered when banks link up electronically
with businesses to accept online payments for goods and services purchased by the businesses’ customers.
In other cases, a new business model for sourcing has resulted, such as one in which companies list their
supply needs and vendors electronically bid to be the supplier for that business.
Demand-driven supply networks are the next step for companies with highly evolved supply chain
capabilities. Kimberly Clark, the 135-year-old consumer products company, is one such example. Its
vision is for a highly integrated suite of supply chain systems that provide end-to-end visibility of the
supply processes in real time. Key processes in the company’s demand-driven supply network are forecast
to stock and order to cash. Using an integrated suite of systems allows the firm’s users to share the same
information as close to real time as possible and to use the data in their systems for continually updating
their supply chain, category management, and consumer insight processes. IS have allowed managers to
reduce the problems of handing off data from one system or process to another (because now everything
is in one system), having employees work from different databases (because it’s now one database), and
working with old data (because it’s as real time as possible). This has improved managers’ ability to see
what’s going on in the marketplace and evaluate the impact of promotions, production, and inventory
much more quickly.
Integrated supply chains are truly global in nature. Thomas Friedman, in his book The World Is Flat,
describes how the Dell computer that he had ordered for writing his book was developed from the con-
tributions of an integrated supply chain that involved about four hundred companies in North America,
Europe, and, primarily, Asia. However, the globalization of integrated supply chains faces a growing chal-
lenge from skyrocketing transportation costs. For example, Tesla Motors, a pioneer in electric powered
cars, had originally planned the production of a luxury roadster for the U.S. market based on an integrated
global supply chain. The 1,000-pound battery packs for the cars were to be manufactured in Thailand,
shipped to Britain for installation, and then shipped to the United States where they would be assembled
into cars. However, because of the extensive costs associated with shipping the batteries more than 5,000
miles, Tesla decided to make the batteries and assemble the cars near its headquarters in California. Darryl
Siry, Tesla’s Senior Vice President of Global Sales, Marketing, and Service explains: “It was kind of a no-
brain decision for us. A major reason was to avoid the transportation costs, which are terrible.” Economists
warn managers to expect the “neighborhood effect” in which factories may be built closer to component
suppliers and consumers to reduce transportation costs. This effect may apply not only to cars and steel but
also to chickens and avocados and a wide range of other items.17
Dell continues to be not only a great example of an integrated supply chain but also of the neighborhood
effect. Its “build-to-order” strategy of building computers as they are ordered rather than to mass-produce
them for inventory required an integrated supply chain. One of the authors of this textbook visited a Dell
plant in Malaysia with several dozen students. An official there described how the plant’s zero inventory
goal was accomplished by ordering components only when computers were ordered, to arrive on the day
of assembly. Also, suppliers were strategically located in adjacent buildings surrounding the plant with an
airport practically in walking distance. In this way, suppliers are closely linked with the actual produc-
tion process.

Product Life Cycle Management (PLM)

Product life cycle management (PLM) systems automate the steps that take ideas for products and
turn them into actual products. PLM refers to the process that starts with the idea for a product and ends
with the “end of life” of a product. It includes the innovation activities, NPD, and management, design,

17
Larry Rohter, “Shipping Costs Start to Crimp Globalization,” The New York Times, World Business, August 3, 2008, http://www.nytimes.
com/2008/08/03/business/worldbusiness/03global.html (accessed August 27, 2015).
124 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

and product compliance (if necessary). PLM systems contain all the information about a product such as
design, production, maintenance, components, vendors, customer feedback, and marketing.

Enterprise System Issues

There are several issues that need to be addressed when deciding to use enterprise systems and imple-
menting them. The advantages and disadvantages of enterprise systems should be fully assessed before an
organization decides to implement one. Which situations are appropriate for the enterprise system driving
a business transformation, as well as the challenges of integrating them across organizations, should also
be considered.

Advantages and Disadvantages of Enterprise Systems

One major benefit of enterprise systems is that they represent a set of industry best practices. One confi-
dential story relayed to the authors described a large university that had suffered for years with inconsist-
ent, incomplete, and immature processes. The university’s leaders announced in advance that rather than
customize a new ERP to fit the old processes, the directive was to replace them with the ones created by
the new ERP. As a result, the ERP’s best practices dramatically improved the university’s ability to provide
information services to faculty, staff, and students and also to track the entire “life cycle” of people from
initial inquiry to graduation and beyond.
Another major benefit of an enterprise system is that all modules of the information system easily com-
municate with each other, offering enormous efficiencies over stand-alone systems. In business, informa-
tion from one functional area is often needed by another area. For example, an inventory system stores
information about vendors who supply specific parts. This same information is required by the accounts
payable system, which pays vendors for their goods. It makes sense to integrate these two systems to have
a single accurate record of vendors and to use an enterprise system to facilitate that integration.
Because of the focus on integration, enterprise systems are useful tools for an organization seeking
to centralize operations and decision making. As described earlier in the Ross framework on integration
versus standardization, high integration allows units to coordinate easily and unify their data for global
access. Redundant data entry and duplicate data may be eliminated; standards for numbering, naming,
and coding may be enforced; and data and records can be cleaned up through standardization. Further, the
enterprise system can reinforce the use of standard procedures across different locations.
The obvious benefits notwithstanding, implementing an enterprise system represents an enormous
amount of work. For example, if an organization has allowed both the manufacturing and the accounting
departments to keep their own records of vendors, then most likely these records are kept in somewhat
different forms (one department may enter the vendor name as IBM, the other as International Business
Machines or even IBM Corp., all of which make it difficult to integrate the databases). Making matters
worse, a simple data item’s name itself might be stored differently in different systems. In one system, it
might be named Phone_No, but in another, it might be simply Phone. Such inconsistencies in data items
and values must be recognized and fixed so that the enterprise system can provide optimal advantage.
Moreover, even though enterprise systems are flexible and customizable to a point, most also require
business processes to be redesigned to achieve optimal performance of the integrated modules. It is rare
that an off-the-shelf system is perfectly harmonious with an existing business process; the software usually
requires significant modification or customization to fit with the existing processes, or the processes must
change to fit the software. In most installations of enterprise systems, both take place. The system is usually
customized when it is installed in a business by setting a number of parameters. Many ERP projects are
massive undertakings, requiring formal, structured project management tools (as discussed in Chapter 11).
All systems make assumptions about how the business processes work, and at some level, customiza-
tion is not possible. For example, one major Fortune 500 company refused to implement a vendor’s enter-
prise system because the company manufactured products in lots of “one,” and the vendor’s system would
not handle the volume this company generated. If the company had decided to use the ERP, a complete
overhaul of its manufacturing process in a way that executives were unwilling to do would have been
necessary.
 Enterprise System Issues 125

Implementing enterprise systems requires organizations to make changes beyond just the processes, but
also in their organization structure. Recall from Chapter 1 that the Information Systems Strategy Triangle
suggests that implementing an information system must be accompanied with appropriate organizational
changes to be effective. Implementing an enterprise system is no different. For example, who will be
responsible for entering the vendor information that was formerly kept in two locations? How will that
information be entered into the enterprise system? The answer to such simple operational questions often
requires managers minimally to modify business processes and more likely to redesign them completely
to accommodate the information system.
Enterprise systems are also risky. The number of enterprise system horror stories demonstrates this
risk. For example, Kmart wrote off its $130 million ERP investment. American LaFrance (ALF), the
manufacturer of highly customized emergency vehicles, declared bankruptcy, blaming its IT vendor and
its ERP implementation. The problems with the implementation kept ALF from being able to manufacture
many preordered vehicles.18 Two months after the installation of a new ERP system, the Fort Worth Police
Officers Association complained that paychecks were not being received correctly or on a timely basis
by officers. Some officers had not been paid since the installation, and others were shortchanged in their
paychecks because the new system was not able to handle odd hours and shift work.
Furthermore, enterprise systems and the organizational changes they induce tend to come with a hefty
price tag. In a study of the initial acquisition and implementation costs of ERP systems in primarily midsize
companies (with $100 million to $1 billion in annual revenues), half of the responding 157 chief financial
officers (CFOs) admitted spending more than $1 million for the license, service, and first year’s main-
tenance on their current ERP systems. Nine of 10 respondents said they spent a minimum of $250,000.
Unreported were additional hidden costs in the form of technical and business changes, likely to be nec-
essary when implementing an enterprise system. These included project management, user training, and
IT support costs.19 Some surveys uncovered negative impacts on performance including cost overruns,
implementation delays, and disruption in business processes such as getting products shipped on time.20
One reason that ERP systems are so expensive is that they are sold as a suite, such as financials or man-
ufacturing, and not as individual modules. Because buying modules separately is discouraged, companies
implementing ERP software often find the price of modules they won’t use hidden in the cost of the suite.21
A set of advantages and disadvantages of enterprise systems is provided in Figure 5.12.

When the System Drives the Transformation

When is it appropriate to use the enterprise system to drive transformation and business process redesign,
and when is it appropriate to redesign the process first and then implement an enterprise system? Although

Advantages Disadvantages
• Represent “best practices” • Require enormous amount of work
• Allow modules throughout the organization to • Require redesign of business practices for maximum benefit
communicate with each other • Require organizational changes
• Enable centralized decision making • Have high risk of failure
• Eliminate redundant data entry • Have very high cost
• Enable standardized procedures in different locations • Are sold as a suite, not individual modules

FIGURE 5.12 Advantages and disadvantages of enterprise systems.

18
For additional examples of IT failures in general and enterprise systems failures in particular, visit the blog written by Michael Krigsman,
http://blogs.zdnet.com/projectfailures/.
19
T. Wailgum, “Why CEOs and CFOs Hate It: ERP,” CIO.com, April 8, 2009, http://advice.cio.com/thomas_wailgum/why_cfos_and_ceos_
hate_it_erp (accessed February 14, 2012).
20
Panorama Consulting 2014 Report, “Organizational Issues Number One Reason for Extended Durations,” http://panorama-consulting.com/
company/press-releases/panorama-consulting-solutions-releases-2014-erp-report/ (accessed February 26, 2015).
21
Ibid.
126 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

it may seem like the process should be redesigned first and then the information system aligned to the new
design, there are times when it is appropriate to let the enterprise system drive business process redesign.
First, when an organization is just starting out and processes do not yet exist, it is appropriate to begin
with an enterprise system as a way to structure operational business processes. After all, most processes
embedded in the “plain vanilla” enterprise system from a top vendor are based on the best practices of
corporations that have been in business for years. Second, when an organization does not rely on its opera-
tional business processes as a source of competitive advantage, then using an enterprise system’s standard
processes to redesign business processes is appropriate. Third, it is reasonable when the current systems
are in crisis and there is not enough time, resources, or knowledge in the firm to fix them. Even though it is
not an optimal situation, managers must make tough decisions about how to fix the problems. A business
must have working operational processes; therefore, using an enterprise system as the basis for process
design may be the only workable plan.
Likewise, it is sometimes inappropriate to let an enterprise system drive business process change. When
an organization derives a strategic advantage through its operational business processes, it is usually not
advisable for it to buy a vendor’s enterprise system without planning on extensive (and perhaps costly)
customization. Using a standard, publicly available information system that both the company and its
competitors can buy from a vendor may mean that any system-related competitive advantage is lost. For
example, consider a major computer manufacturer that relied on its ability to process orders faster than its
competitors to gain strategic advantage. Adopting an enterprise system’s standard approach would result
in a loss of that advantage. Furthermore, the manufacturer might find that relying on a third party as the
provider of such a strategic system would be a mistake in the long run because any problems with the sys-
tem due to bugs or changed business needs would require negotiating with the ERP vendor for the needed
changes. With a system designed in-house, the manufacturer was able to ensure complete control over the
IS that drives its critical processes.
Another situation in which it would be inappropriate to let an enterprise system drive business process
change is when the features of available packages and the needs of the business do not fit. An organiza-
tion may use specialized processes that cannot be accommodated by the available enterprise systems. For
example, many ERPs were developed for discrete part manufacturing and do not support some processes
in paper, food, or other process industries.22
A third situation would result from lack of top management support, company growth, a desire for
strategic flexibility, or decentralized decision making that render the enterprise system inappropriate. For
example, a large manufacturing company stopped the full implementation of an enterprise system after
installing the human resources module because the CIO did not think that the software would be able to
keep pace with the company’s extraordinary growth. Enterprise systems were also viewed as culturally
inappropriate at a highly decentralized consumer products company.

Challenges for Integrating Enterprise Systems Between Companies

With the widespread use of enterprise systems, the issue of linking supplier and customer systems to the
business’s systems brings many challenges. As with integrated supply chains, there are issues of deciding
what to share, how to share it, and what to do with it when the sharing takes place. There are also issues of
security and agreement on encryption or other measures to protect data integrity as well as to ensure that
only authorized parties have access.
Some companies have tried to reduce the complexity of this integration by insisting on standards
either at the industry level or at the system level. An example of an industry-level standard is the
bar coding used by all who do business in the consumer products industry. An example of a system-
level standard is the use of SAP or Oracle to provide the ERP system used by both supplier and
customer. And the increasing use of cloud-based systems with standard interfaces makes the integra-
tion easier.

22
Markus and Tanis, “The Enterprise System Experience,” 176–79.
 Key Terms 127

SUMMARY

• Most business processes today have a signi cant IS component to them. Either the process is completely
executed through software or an important information component complements the physical execu-
tion of the process. Transforming business, therefore, involves rethinking the IS that support business
processes.
• IS can enable or impede business process change. IS enable change by providing both the tools to imple-
ment the change and the tools on which the change is based. IS can impede change, particularly when
the process ow is mismatched with the capabilities of the IS.
• To understand the role IS plays in business transformation, one must take a business process rather than
a functional (silo) perspective. Business processes are well-de ned, ordered sets of tasks characterized
by a beginning and an end, sets of associated metrics, and cross-functional boundaries. Most businesses
operate business processes even if their organization charts are structured by functions rather than by
processes.
• Digital business models are disrupting traditional business models by enabling companies to better
understand their customers, offer new and innovative products and services, and dynamically leverage
ecosystems.
• Agile business processes are processes that are designed to be easily recon gurable. Dynamic processes
are designed to automatically update themselves as conditions change. Both types of processes require a
high degree of IS, which makes the task of changing the process a software activity rather than a physi-
cal activity.
• Making changes in business processes typically involves either incremental or radical change. Incre-
mental change with TQM and Six Sigma implies an evolutionary approach. Radical change with a BPR
approach, on the other hand, is more sudden. Either approach can be disruptive to the normal ow of the
business; hence, strong project management skills are needed.
• BPM systems are used to help managers design, control, and document business processes and ulti-
mately the work ow in an organization.
• An enterprise system is a large information system that provides the core functionality needed to run a
business. These systems are typically implemented to help organizations share data between divisions.
However, in some cases, enterprise systems are used to effect organizational transformation by impos-
ing a set of assumptions on the business processes they manage.
• An ERP system is a type of enterprise system used to manage resources including nancial, human
resources, and operations.
• A CRM system is a type of enterprise system used to manage the processes related to customers and the
relationships developed with customers.
• An integrated supply chain is often managed using an SCM system, an enterprise system that crosses
company boundaries and connects vendors and suppliers with organizations to synchronize and stream-
line planning and deliver products to all members of the supply chain.
• A PLM system is a type of enterprise system designed to support product development from its rst idea
up through its end.
• IS are useful as tools to both enable and manage business transformation. The general manager must
take care to ensure that consequences of the tools themselves are well understood and well managed.

KEY TERMS

agile business processes, 112 business process reengineering digital business models, 115
business process management (BPR), 113 dynamic business processes, 112
(BPM), 116 customer relationship manage- enterprise information systems
business process perspective, 109 ment (CRM), 120 (EIS), 118
128 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

enterprise resource planning product life cycle management total quality management
(ERP), 119 (PLM), 123 (TQM), 113
enterprise system, 117 silo perspective, 110 workflow, 115
middleware, 120 six sigma, 113 workflow diagram, 115
process, 109 supply chain management
process perspective, 109 (SCM), 122

DISCUSSION QUESTIONS

1. Why would a manager prefer radical redesign of business processes over incremental improvement?
Why do you think reengineering was so popular when it first was introduced?
2. Off-the-shelf enterprise IS often force an organization to redesign its business processes. What are the
critical success factors to make sure the implementation of an enterprise system is successful?
3. ERP systems are usually designed around best practices. But as discussed in this chapter, a Western bias
is common and practices found in North America or Europe are often the foundation. Why do you think
this is the case? What might an ERP vendor do to minimize or eliminate this bias?
4. Have you been involved with a company doing a redesign of its business processes? If so, what were
the key things that went right? What went wrong? What could have been done better to minimize the
risk of failure?
5. What do you think the former CIO of Dell Computers meant when he said, “Don’t automate broken busi-
ness processes”?
6. What might a digital business model look like for a financial services company such as an insurance
provider or a bank? What are the critical components of the business model? What would the customer
relationship management process look like for this same firm?
7. Tesco, the U.K. retail grocery chain, used its CRM system to generate annual incremental sales of £100
million. Using a frequent shopper card, a customer got discounts at the time of purchase, and the com-
pany got information about the customer’s purchases, creating a detailed database of customer prefer-
ences. Tesco then categorized customers and customized discounts and mailings, generating increased
sales and identifying new products to expand the organization’s offerings. At the individual stores, data
showed which products must be priced below competitors, which products had fewer price-sensitive
customers, and which products must have regular low prices to be successful. In some cases, prices
were store specific, based on the customer information. The information system has enabled Tesco to
expand beyond groceries to books, DVDs, consumer electronics, flowers, and wine. The chain also
offers services such as loans, credit cards, savings accounts, and travel planning. What can Tesco man-
agement do now that the company has a CRM that it could not do prior to the CRM implementation?
How does this system enable Tesco to increase the value provided to customers?

Source:
“Technology: How Much? How Fast? How Revolutionary? How Expensive?” Fast Company 56, no. 62, http://www.fastcom-
pany.com/online/56/fasttalk.html (accessed May 30, 2002).
 Discussion Questions 129

Case Study 5-1 Carestream Health

In 2019, Carestream Health employed more than 6,000 employees and operated in 150 countries. It
was founded in 2007 when a private equity investment firm, Onex Corporation, purchased Kodak’s
Health Group. At the time of its acquisition, Kodak’s Health Group had three primary businesses:
Film, Mental Digital, and Digital Dental. Eileen Wirley, the CIO of Kodak’s Health Group, became
the first CIO at Carestream Health. The main goal for the business overall, and IT in particular, was
to create cost-savings through simplification. In IT this translated into consolidating applications
so that every part of the business was standardized in terms of its processes and systems. In 2014,
Carestream had a single instance of SAP running across the entire company and several horizontal
processes such as HR, ordering, supply chain, and purchasing.
When the Carestream CEO Kevin Hobart asked CIO Bruce Leidal to envision what the Film
business of the future, Leidal knew mass-scale digitalization was inevitable. He said: “We could
either build the bus or get run over by the bus, so I had to figure out ways to free up some funding to
explore how our back-end processes could be redesigned for this transformation.” In 2014 and 2015,
Leidal adopted a customer-centric approach for his group and created a target digital architecture
that included a customer portal, e-commerce software, mobile apps, electronic data interchange
(EDI), web content management, and an IoT platform to connect the company’s film printers. Bruce
tried to anticipate the foundational IT that would be needed to support the transformation to a new
digital business model.
In 2016, the Carestream leadership team and board of directors strategically changed the focus
from cost savings to monetizing the Carestream assets it had acquired. At the same time it sold its
Digital Dental business.
To plan for the transformation, the CIO and CEO invited key stakeholders across the Film industry
to each join in one of a series of two-day workshops. Each workshop had six to nine participants who
helped explore the Film processes in depth. Present at each workshop were business decision mak-
ers, a consultant, an IT person who was assigned to take notes, Carestream’s Director of Design from
the Marketing Department (Peter Lautenslager), and Leidal. Together the participants described and
documented the current processes with all of their complexities, as well as discussed the preferred
way to execute the work. The consultant in each workshop cut short unproductive debates about best
practices and made recommendations based on the discussions. The IT person documented the pro-
cess using Visio, which helped in visualizing the processes by creating flowcharts and diagrams that
could be employed in the subsequent systems development efforts. Lautenslager used the informa-
tion and documentation from the workshops to build storyboards, which offered a visual representa-
tion to nail down the steps in the future process and make the process tangible. The storyboards of
the future state scenarios were integrated into two high-level stories, electronic ordering (eOrdering)
and a customer connection initiative.
A proposal for the new program (i.e., eOrdering and customer connection) was costed out and
refined to reflect necessary organizational redesign based on information garnered at meetings with
global functional groups such as HR and finance. The storyboards, processes, and new organiza-
tional design related to eOrdering and Connected Customer were presented to the Executive Leaders
Team and approved in May 2017.
The transformation involved and impacted numerous Carestream departments (e.g., logistics,
pricing, sales, legal, product development, field service, and shared service centers). A large program
team was assembled with five major leaders: a program manager who was responsible for deliver-
ing the overall program, a business program manager who worked with business stakeholders and
was responsible for the business side of the program, a project manager who assisted the program
manager on project management activities, a technical lead who was responsible for all software
and architecture, and an outsourcing manager who communicated with the offshore developer. The
first four eOrdering components of the large program were developed (i.e., Shop Carestream, remote
management services, customer registration and activation, and managed print services and self-
serve kiosks) using agile development methods. These first components of eOrdering were ready
for roll-out in 2017.
130 INFORMATION SYSTEMS AND DIGITAL TRANSFORMATION

Case Study 5-1 (Continued)

The initial adoption and use of Shop Carestream was disappointing. Its adoption rate stalled
at 20%. After Hobart set a goal of 100% participation, massive efforts were undertaken to under-
stand the reasons behind the low adoption rate. It was learned that ordering and processing
requirements varied in different countries and regions of the world. Local adaptation to eOrder-
ing was implemented and metrics were created to assess progress of Shop Carestream adoptions
and to track business (e.g., number and percentage of manual orders, number and percentage of
shop Carestream orders, number and percentage of EDI orders) and customer benefits.
The operations of the eOrdering platform were turned over to business owners in Summer 2018.
The adoption rate of Shop Carestream has hovered around 85% and customer satisfaction and costs
derived from eOrdering have kept improving, thus placing Carestream in a “position of competitive
advantage” according to Andy Mathews, Carestream’s Director of Film Business Planning and Strat-
egy. CEO Hobart is “generally very happy” and noted cost savings, a reduced headcount from attri-
tion and staff who were doing work that added more value.

Sources: Adapted from H. A. Smith and R. T. Watson, “Restructuring Information Systems Following the Divesti-
ture of Carestream Health,” MIS Quarterly Executive 12, no. 3 (2013); https://www.cio.com/article/2374555/careers-
staf ng/new-cios-at-carestream-health--alere-medical-and-more.html (accessed March 16, 2019); Carestream Cor-
porate Leadership, https://www.carestream.com/en/in/corporate/leadership (accessed March 16, 2019); and e-mail
from Heather Smith, March 23, 2019.

Discussion Questions
1. Would you consider this transformation to be incremental or radical? Why?
2. What do you think is meant by a “single instance of SAP running across the entire company
and several horizontal processes such as HR, ordering, supply chain, and purchasing.” Which
would likely be in place at Carestream: a siloed perspective or a business process perspective?
Please explain.
3. Why do you think emphasis was placed on developing metrics to measure the adoption and ben-
efits of Shop Carestream?
4. In a complex, global business, do you think that a digital transformation can ever be “one-size-
fits-all”? Please explain.
5. CIO Leidal reflected “If I had to do it over again I’d have started the business change earlier. This
was a much bigger change for our business than just building an e-commerce engine?” Why do
you think he said this?

Case Study 5-2 Santa Cruz Bicycles

Bicycle enthusiasts not only love the ride their bikes provide but also are often willing to pay for
newer technology, especially when it will increase their speed or comfort. Innovating new technolo-
gies for bikes is only half the battle for bike manufacturers. Designing the process to manufacture
the bikes is often the more daunting challenge.
Consider the case of Santa Cruz Bicycles. It digitally designs and builds mountain bikes and tests
them under the most extreme conditions to bring the best possible product to its customers. A few
years back, the company designed and patented the Virtual Pivot Point (VPP) suspension system, a
means to absorb the shocks that mountain bikers encounter when on the rough terrain of the off-road
ride. One feature of the new design allowed the rear wheel to bounce 10 inches without hitting the
frame or seat, providing shock absorption without feeling like the rider was sitting on a coiled spring.
The first few prototypes did not work well; in one case, the VPP joint’s upper link snapped after
a quick jump. The experience was motivation for a complete overhaul of the design and engineering
 Discussion Questions 131

Case Study 5-2 (Continued)

process to find a way to go from design to prototype faster. The 25-person company adopted a
similar system used by large, global manufacturers: product life cycle management (PLM) software.
The research and development team had been using computer-aided design (CAD) software,
but it took seven months to develop a new design, and if the design failed, starting over would be
the only solution. This design approach was a drain not only on the company’s time but also on its
finances. The design team found a PLM system that helped members analyze and model capabilities
in a much more robust manner. The team used simulation capabilities to watch the impact of the new
designs on rough mountain terrain. The software tracks all the variables the designers and engineers
need so they can quickly and easily make adjustments to the design. The new system allows the
team to run a simulation in a few minutes, representing a very large improvement over their previous
design software, which took seven hours to run a simulation.
The software was just one component of the new process design. The company also hired a
new master frame builder to build and test prototypes in-house and invested in a van-size machine
that can fabricate intricate parts for the prototypes, a process the company previously outsourced.
The result was a significant decrease in its design-to-prototype process. What once averaged about
28 months from start of design to shipping of the new bike now takes 12 to 14 months.
Santa Cruz has continued improving the technology of its bikes and it started offering a full range
of high-end bicycles for women through its sister brand, Juliana.

Sources: Adapted from Mel Duvall, “Santa Cruz Bicycles,” www.baselinemag.com (accessed February 24, 2008)
and Santa Cruz Bicycles home page, https://www.santacruzbicycles.com/ (accessed March 16, 2019).

Discussion Questions
1. Would you consider this transformation to be incremental or radical? Why?
2. What, in your opinion, was the key factor in Santa Cruz Bicycles’ successful process redesign?
Why was that factor the key?
3. What outside factors had to come together for Santa Cruz Bicycles to be able to make the changes
it did?
4. Why is this story more about change management than software implementation?